McFarlane loses patience with Jenkins and takes over at Barclays
The only surprise about Wednesday's change at the top of Barclays is the speed at which the new chairman has chosen to take direct responsibility for meeting the considerable challenge of providing a decent return to shareholders.
When the end came for Antony Jenkins, it was brutal and swift, but the ouster of Barclays’ chief executive was far from unexpected. Indeed many had seen this day coming from the moment news broke in September 2014 that John McFarlane would be coming in as chairman. McFarlane was always going to be a much more decisive figure, and one more closely involved in the running of Barclays than his predecessor as chairman, Sir David Walker, who was appointed in the aftermath of the departure of John Varley and Bob Diamond in the wake of the Libor scandal in 2012. Jenkins had won many admirers for his work in turning round Barclaycard, but his rise to chief executive in the tumultuous weeks after the Bank of England forced the departure of Diamond, builder of the modern-day Barclays, always looked like the classic battlefield promotion that might not last.
After arriving at UK insurer Aviva in December 2012 as executive chairman, McFarlane ruthlessly focused that company on business that could provide a decent return to shareholders: he cut thousands of jobs, overhauled the board and brought in a new chief executive. The share price doubled.
The news of his impending arrival at Barclays came just five months into the UK bank’s latest restructuring, designed to cut the group’s dependence on its investment bank and to reshape it for a new era of large capital requirements against risk-weighted assets. Insiders have had their tin hats on ever since, waiting for the impact of McFarlane.
"McFarlane is a man with all the answers," one senior City source who knows him well tells Euromoney. "At least in his own mind."
Antony Jenkins often talked about running Barclays for shareholders, for clients, for society at large and for employees. "McFarlane likes to keep things simple. He’ll want to run it for shareholders," the source adds.
McFarlane, who joined the Barclays board in January, had barely taken up his new position as chairman this April when he wrote a letter to shareholders telling them: "We need to reposition and improve those segments across the Barclays Group which operate below our required return. We need to take a considered view as to their prospects as well as the probability of their future success, and put in place plans and action to improve them or curtail those that are unable to be resuscitated."
As Euromoney pointed out, when it pored over the progress of Barclays’ restructuring last month and the identity crisis the bank is suffering from, this sounded as much like a stern memo to the chief executive as a letter to shareholders.
McFarlane talked broadly in April about plans for closing the share price discount to tangible book value, restoring a decent dividend and needing “to get the errors of the past behind us, to achieve a satisfactory rate of revenue growth, greater cost discipline and a more dynamic reallocation of capital”. This is all, of course, the chief executive’s job.
Senior UK banking sources suggested to Euromoney earlier this year that Jenkins' remaining time at the top of Barclays could be measured in months.
McFarlane has moved even faster. Today, Barclays announced that he will be taking over from Jenkins while the bank seeks a new chief executive. McFarlane becomes executive chairman. Members of the group executive committee will report to him directly. It was left to Michael Rake, deputy chairman and senior independent director, to explain that the non-executives on Barclays board had concluded that “notwithstanding Antony’s significant achievements, it became clear to all of us that a new set of skills were required for the period ahead”.
Rake does not specify what these skills are or why exactly McFarlane is best qualified to do the job until a permanent successor is appointed. But it’s intriguing that Rake should say McFarlane’s appointment does not signal any great change in strategy. McFarlane himself, while amusingly endorsing the board’s decision today, focused on execution, traditionally the task of the chief executive after strategy has been agreed with the chairman and the board.
Ian Gordon, banks analyst at Investec, notes: “We assume that John McFarlane and/or Antony Jenkins’ permanent successor will quickly signal a faster run-down of non-core assets coupled with further rationalization within the low return investment bank. Sources of incremental revenue growth are less obvious, although increased aggression within Barclaycard and/or the UK retail/commercial businesses offers some potential opportunity.”
McFarlane says that while the bank has first-class retail, commercial and investment banking businesses: “We are leaving value on the table, and a new approach is required. As a group, if we aspire to bring shareholder returns forward, we need to be much more focused on what is attractive, what we are good at and where we are good at it.”
Because of his achievements at Aviva and before that at ANZ, McFarlane is regarded as a man who gets the job done. The share price was up just over 3% this morning on the news. But it remains to be seen how good a job he – or any chief executive he brings in and primes – will do in overhauling the investment bank, which is still the story at Barclays.
It’s not as simple as it sounds to allocate capital only to businesses that produce good returns on equity. If that was the sole aim, then shrink it to an M&A boutique. But investment banking has always been riven with complex cross-subsidization. It used to be that banks complained margins on new issues were lousy but they had to do them because they brought in very lucrative derivatives business. Now it’s the returns on derivatives that are lousy because of high capital requirements, but banks have to provide them to customers to win new-issue business, where they now seem to think they can make good returns.
Barclays insiders will be ill advised to try and run rings round McFarlane, however, on any of this. As well as having run a bank as chief executive, he took senior management roles in investment banking and markets businesses early in his career at Citigroup. He knows how it works. One recent departure from Barclays raised doubts to Euromoney about whether or not Jenkins really understood the business.
“I fear others may mislead and take advantage of him [Jenkins]," said the leaver. "Tom King [head of the investment bank] is in the same boat, a corporate financier running an investment bank still largely dependent on its markets businesses and especially debt markets. They have made mistakes on people in senior management positions, on pay and on some of the tough choices that remain to be taken. Barclays is now a sub-scale global investment bank. It’s probably easier to see where it will have to be in three years – smaller, more focused geographically, dealing with fewer clients – than how they will get it there, if it’s still the same people in charge."
It won’t be. But for now, that’s the only thing that is resolved.