Barclays CEO Change Seen Prompting Deeper Investment Bank Review

Antony Jenkins
Former Barclays CEO Antony Jenkins. Photographer: Jerome Favre/Bloomberg

Barclays Plc Chairman John McFarlane may seek to broaden an overhaul of the investment bank after ousting Chief Executive Officer Antony Jenkins as Britain’s second-largest lender accelerates efforts to revive profit.

McFarlane, who is taking over from Jenkins until a successor is found, has pledged to reallocate capital and prioritize investment in the lender’s most profitable units. He’s seeking a new CEO who is familiar with investment banking, he said Wednesday, as he tackles restoring the division which has slumped to being the company’s least profitable.

“The investment bank seems to be destroying value,” said Arun Melmane, a London-based analyst at Canaccord Genuity, who has a buy rating on Barclays. “The pace of restructuring ought to improve.”

Barclays already plans to cut some 7,000 jobs at the investment bank, run by Tom King, and set up a unit for the sale of assets such as complex derivatives. Rising costs stemming from tougher regulatory demands and fines for market rigging have eroded earnings at the unit, which generates about a fifth of the group’s pretax profit, down from almost half in 2011.

“Jenkins was dealt a duff hand and he’s paid the price for not being brave enough,” said Ed Firth, head of European bank research at Macquarie Group Ltd. “When he took over he had a huge investment bank that pretty much did as it liked and it took him too long to sort through this.”

Revenue Lag

The division reported a 2.7 percent return on equity in 2014, trailing the group target of 12 percent. Barclays needs to bring costs down and may also need to slim down businesses that lack scale to compete with international peers, Melmane said.

Revenue at the investment bank in the first quarter rose just 2 percent from the year-earlier period to 2.15 billion pounds ($3.3 billion). The world’s top investment banks saw revenue rise almost 10 percent on average in the period, data compiled by Bloomberg show.

The bank has lost market share in advising on mergers and stock offerings, the data show, signaling Barclays may be falling behind in businesses it intends to keep.

After losing a number of high-profile bankers last year, including Paul Parker, head of global mergers and acquisitions, and Hugh “Skip” McGee, head of the Americas division, the bank has been attempting to hire dealmakers to strengthen its team in the U.S.

The bank also failed to benefit from the rebound in fixed-income trading activity in the first quarter, said Brenda Kelly, head analyst at London Capital Group Ltd. “There will likely be more” job cuts.

‘More Decisive’

The British bank is not alone in struggling with profitability of its securities unit and is joining Deutsche Bank AG and Credit Suisse Group AG in replacing CEOs this month to speed up the firms’ revamp.

“We need to be clear, and much more decisive, and move forward the results for shareholders as fast as we can,” McFarlane told reporters, noting that the company’s shares have hardly changed in six years.

John Cryan, the new co-CEO of Deutsche Bank, pledged to tackle costs and cut back trading operations of Europe’s biggest investment bank by revenue. Credit Suisse CEO Tidjane Thiam, who started this month, said units will have to compete for resources after investors have grown impatient with the pace of restructuring. UBS Group AG, which in 2012 decided to dramatically scale down its investment bank, still reported a loss at the unit last year after provisions for currency-rigging probes.

“We are making the right decision about strategy now,” McFarlane told reporters. “We’ve got a new plan for the investment bank that was presented to us, which we can cover a bit more” when the bank reports second-quarter earnings July 29.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE