For much of the 1980s and 1990s Barclays Bank was a great franchise in slow and gentle decline. It never suffered the massive setbacks and losses that beset its UK rivals, Midland and NatWest, both of which eventually succumbed to takeovers, but neither did it seem to be capable of making any great progress. It mishandled its investment banking build-up and subsequent disposal, it allowed its international network to wither and lost market share in key segments at home by standing aloof from domestic consolidation.
The appointment of a new chief executive, Matthew W Barrett, brought in from Bank of Montreal towards the end of 1999, initiated a marked turnround. In a little over a year in charge, Barrett has reinvigorated the company, implemented a new growth strategy, promoted a new generation of younger managers, completed a key acquisition and joint venture, reorganized the banks’ divisions and made it easier to analyze performance by business units.
Shareholders have felt the benefits. In 2000 Barclays reported pre-tax profits of ?3.5 billion, up 42% on 1999. It has increased overall income in the first quarter of 2001 compared with Q1 2000, which was itself a record. Now the bank is optimistic of regaining a place among the global elite.
“The first thing that struck me was the awesome power of the Barclays brand,” says Barrett. ?It has extraordinary awareness around the world, as I knew from running a bank on the other side of the pond. But I thought ” and many people here thought ” that we had punched below our weight for about a decade.”
Barrett set about devising a strategy for growth. Among his first strategic initiatives were deals to fill in obvious key gaps at home.
Last year the bank acquired The Woolwich and with it a greater share of the UK mortgage market. At the start of this year it negotiated an agreement to distribute Legal & General’s insurance, pensions and other long-term savings products through its network, which includes retail branches, the internet and a large mass-affluent business. It thus filled another obvious gap. “Historically financial institutions used to sell what they made. But increasingly you have to ask whether that’s appropriate,” says Barrett. “When you get into managing people’s long-term savings and preparing them for retirement, you find that people want best-of-breed products. Just pushing your own products may not be the right strategy.”
He adds that the economics of buying a large investment management firm did not seem attractive. Aside from price, the new Basle capital requirements may impose a capital charge against assets under management, making it less appealing for banks to own such businesses. Few banks have acquired asset managers successfully.
As for The Woolwich, the integration is ahead of schedule. “We realized we had been too conservative on our estimates of synergies and we’re at about double the rate we had envisaged,” says Barrett. “And people are getting excited about ways to exploit those products in areas you wouldn’t normally think of, such as bringing the Open Plan proposition in a customized form to our mass-affluent customers.”
Having plugged the gaps at home, Barrett is now intent on building regional and global scale in selected businesses, notably Barclaycard, which he describes as the second largest credit card franchise in the world; Barclays Capital, the debt-focused investment bank; and Barclays Global Investors, the specialist index-tracking fund manager. Such talk immediately leads to speculation about possible takeovers or mergers. Barrett is keeping all his options open. ?I have to ask can I meet the objective of doubling value in four years through organic growth. If I can, then that becomes the strategy. If you have a strategy that depends for its success on acquisitions you can end up overpaying and overstretching. Our strategy starts with expanding these businesses organically ? trading off the expense of investment against the cost of goodwill.
But he also adds: ?I would never rule out either in-fill transactions or a major transformational deal.?
Barrett says he is especially proud of the investment-banking business that Bob Diamond has built in the three years since the equity part of the old BZW was sold off leaving, seemingly, not much behind. Here Barclays may have enjoyed some luck. The time for a debt-focused investment bank has arrived, now that corporate chief executives have come to understand the crucial role the debt markets can play in helping create or, if they mishandle the debt markets, in helping to destroy shareholder value.
?It?s a very good model. Our bankers now have a seat at the same table as the equity and advisory investment bankers. We?re able to command more fee income and the profitability per customer is improving,? Barrett says. ?Barclays Capital is a very scaleable machine and we want to put more volume through it. Fortunately, because of its success, Barclays Capital is becoming an employer of choice and we are being approached by top-quality origination people.? He says the group is wedded to the model and intends to invest more in it.
With Barclaycard, the plan is to expand in Europe where credit-card penetration is much lower than it is in the UK or the US. The bank is pushing the business in Germany, France and Spain. ?I?d like to leverage off competencies which we have and which are quite rare in that business,? Barrett says. ?Without data mining and data storage you can?t be a volume player.?
In the wealth-management area, Barrett has combined various disparate old Barclays? businesses into a new private client group ? connecting up the dots, he calls it ? which gives a scale that permits greater investment. Last year the group earned ?600 million in that area.
?We?ve been voted the top affluent brand on the continent for the last two years. And at the time when a lot of new aspirants haven?t even started building, we?re going to put more blue water between us and them by continuing to invest,? Barrett says. ?What we?re doing shows that you can earn, invest and grow at the same time.?
