Barclays to shake up investment bank
Barclays is preparing a radical overhaul of its troubled investment bank in a move which is expected to result in thousands of job cuts, adding to pressure on the division’s two heads. The shake-up comes amid growing investor disquiet about the bank’s decision to increase bonus payments by 10 per cent to £2.4bn in total last year in spite of a one-third fall in its pre-tax profits. Shareholders are also unhappy about rising costs and falling profits at the investment bank, which is jointly run by Tom King in the US and Eric Bommensath in Europe. The new strategy for the investment bank is expected to be unveiled before the summer. Two people familiar with the situation said the bank was also considering replacing Mr King and Mr Bommensath, though this may not happen until after the new strategy is presented. Barclays denied that a search was "in train for any change to leadership in the investment bank". Antony Jenkins, chief executive, has attracted widespread criticism for the performance of the investment bank and for arguing that without the higher bonuses Barclays would face a "death spiral" of departing bankers. One top 25 investor at Barclays said: "Jenkins has been slow to act. The honeymoon . . . is clearly over, if there ever was one. The issue of costs is one Jenkins needs to get a grip of." Last year the division generated a return on equity of 8.2 per cent – below its cost of capital – while its ratio of costs to income increased from 39.6 to 43.2 per cent. The unit was hit by a sharp drop in revenues at its core fixed income division, once the main motor of Barclays profits. The climate has worsened this year, as the fixed income industry has suffered a decline of up to 25 per cent since December. Barclays is expected to slash thousands of jobs at the investment bank and reallocate capital away from the division to more profitable areas, such as Barclaycard and UK mortgage lending. Mr King and Mr Bommensath were only appointed by Mr Jenkins a year ago to replace Rich Ricci, a close ally of the previous chief executive, Bob Diamond, who was ousted in 2012 as a result of the Libor rate manipulation scandal. One potential replacement as head of the investment bank is Tushar Morzaria, the well-regarded finance director who joined in October from JPMorgan Chase. However, some question whether he has enough experience. Mr King was regarded as a talented M&A adviser in his previous jobs at Barclays and Citigroup. Mr Bommensath, who joined Barclays in 1997, faces growing criticism from within the bank, according to insiders. The duo have failed to convince investors that they can restore the investment bank to making sustainable returns above its cost of equity. Shares in Barclays have fallen more than 10 per cent since its results last month, underperforming the sector, but mirroring a similar fall at its main European rival Deutsche Bank. Some investors are threatening to vote against the bank’s remuneration report at next month’s annual meeting, adding to the pressure on Mr Jenkins to take swift action. "The pay thing was a scandal and it has put fund managers who I speak to in a really tricky position," said one adviser to Barclays. Another person familiar with the bank said: "The investment bank has to shrink and be reshaped. They are a bit like rabbits in headlights."