Barclays Will Set Profitability Target in 2013, CEO Says
The bank, the U.K.’s second-largest by assets, will seek a return on equity above its cost of equity and reveal the margin in 2013, Jenkins said yesterday in a conference call with analysts. The lender’s cost of equity was 11.5 percent for 2011. The firm said in February that it may fail to hit a 13 percent target for ROE by 2013 after it fell to 6.6 percent in 2011.
A margin above the cost of equity “is exactly the right metric for us to use,” said Jenkins, 51. “I want to deliver sustainable returns.”
Jenkins, who succeeded Robert Diamond as CEO last month following the Libor-rigging scandal, will review which parts of the company will stay and which will be sold or shrunk, Jenkins said. There will be “no exit from whole business lines” and no outright breakup of the London-based bank. The plan will take two to three years to complete, and the lender is committed to the universal banking model, he said.
The lender may cut its investment bank by 20 percent, the Sunday Times said last month after an interview with incoming Chairman David Walker.
Walker’s comments “should be taken as adjectival and directional and not the output of any considered analysis,” Jenkins said. “It’s likely over time some activities on the margin of investment banking will be affected. Is it 20 percent? I’m not going to comment or commit to that number.”
The securities unit started a review in July including an assessment of pay as part of “our ongoing efforts to balance the needs of all our stakeholders,” Rich Ricci, the firm’s investment banking chief, said yesterday at an investor conference in New York, according to remarks posted on the firm’s website.
Barclays’s corporate and investment bank eliminated more than 500 million pounds ($799 million) of expenses in the past 18 months, Ricci said.
Barclays, fined 290 million pounds in June by U.S. and U.K. regulators for manipulating the London interbank offered rate, sustained “major damage” to its brand, Jenkins said. It will have the “highest ethical standards” from now on, he said.
That may mean exiting some businesses, Ricci said.
“We have to take a fresh look to see if there are products and services in which, given the changing environment, we no longer deem it appropriate to do business, regardless of financial return,” Ricci said. “For example, elements of our tax advisory business have generated negative media and political attention, as has the sale of structured products to” small-and medium-sized businesses, he said.
Barclays in February agreed to comply with a government decision to close two “highly abusive” tax loopholes, which could have deprived the public purse of more than 500 million pounds, according to the Treasury. A U.K. parliamentary committee this month urged Barclays to explain its use of the tax avoidance plan.
Barclays in February said it had voluntarily disclosed that it had bought back some of its own debt in a tax efficient manner and had also disclosed to the tax authority that it had invested in a fund in a tax-efficient way.
The bank this month was also criticized by lawmakers for being slow to redress customers mis-sold interest-rate hedging products after setting aside 450 million pounds for compensation.
The review of margins comes as stricter capital rules for banks makes some operations less profitable.
Deutsche Bank AG co-CEO Juergen Fitschen has distanced himself from a 25 percent ROE target of his predecessor Josef Ackermann, saying a 14 percent to 15 percent goal is more realistic. The Frankfurt-based bank presents its strategy to investors today.
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