Barclays Plc (BARC) is planning to move its commodities division into a so-called bad bank of unwanted assets and units to be overseen by Eric Bommensath, according to a person familiar with the plan.
Tom King, 53, co-head of the corporate and investment bank with Bommensath, will become its sole leader, the person said yesterday, asking not to be identified because the change hasn’t been made public. Bommensath will oversee businesses that the London-based firm previously designated as part of its “exit quadrant,” according to the person.
“A number of banks have created a bad bank in the hope that investors will look past non-core assets and value the core franchise that makes a much higher return,” said Simon Maughan, head of research at Olivetree Financial Group in London, in an e-mail. “However, given bad bank assets have long durations, especially the really toxic stuff, investors are not fooled by this.”
Barclays Chief Executive Officer Antony Jenkins, 52, is reshaping its investment bank amid pressure to reduce costs and improve profitability and concentrate on consumer and corporate banking. The company, which is scheduled to present its strategy to investors on May 8, also said yesterday that Hugh “Skip” McGee will step down from his role as CEO of the Americas division at the end of the month.
The bank gained 0.4 percent to 252.2 pence at 8:49 a.m. in London trading, valuing the company at 41.2 billion pounds ($69 billion).
Lenders including Citigroup Inc. and Royal Bank of Scotland Group Plc have segregated unwanted assets into bad banks in the wake of the financial crisis. That allows executives to show progress in businesses they plan to keep, while winding down the distressed units.
McGee, 54, the highest-paid executive at Barclays, was one of the most senior dealmakers to join the British bank when it bought Lehman Brothers Holdings Inc.’s U.S. unit. He had sought the job that’s going to King, according to two colleagues who requested anonymity.
“My focus has always been on clients, but given the need for Barclays leadership to focus on regulatory issues for the foreseeable future, I have decided that it is time for me to move on,” McGee said in an e-mailed statement.
King and Bommensath took over as co-CEOs of corporate and investment banking last May after the departure of Rich Ricci, one of the last remaining members of former CEO Robert Diamond’s management team.
Bommensath, a native of France, joined Barclays in 1997 as head of derivatives in Europe. He was named to oversee fixed income in 2002 and later took over trading for the Americas. King, an American, was head of global mergers and acquisitions at Salomon Brothers and later oversaw banking in Europe for New York-based Citigroup.
McGee received an all-stock bonus of 8.87 million pounds ($14.9 million), according to a statement from the company last month. Bommensath got 8.65 million pounds and King was paid 3.81 million pounds.
Barclays, the second-largest U.K. lender, said last year that the so-called exit quadrant businesses include portfolios of loans at its European consumer unit, U.S. residential mortgage assets and parts of its corporate book in Spain and Portugal. It also contains some of the firm’s rates trading unit, derivatives and other fixed-income assets.
“I don’t see any particular merit in the creation of a bad bank,” said Ian Gordon, an analyst at Investec Ltd. with a buy rating on the stock, said in an e-mail. “It is no secret that Barclays would love to be rid of its sub-scale return-dilutive European retail bank, but that was and remains the case whether inside or outside a bad bank.”
RBS took similar steps in 2013. The Edinburgh-based company, Britain’s biggest publicly owned lender, said Nov. 1 that it had transferred $38.3 billion pounds of its worst loans to an internal bad bank.
Barclays said in February that risk-weighted assets from the exit quadrant units totaled 54 billion pounds at the end of 2013, down from 94 billion pounds a year earlier.
“Barclays is somewhat behind the curve in creating a unit for businesses it’s winding down,” Joseph Dickerson, an analyst at Jefferies International with a buy rating on Barclays, said by telephone. “If it’s structured the right way it will provide visibility and if some of the existing investment banking businesses that are more capital intensive, such as rates, are placed in it, it could help generate better returns.”