At Barclay's, A Stiff Upper Lip No Longer Suffices

To the London press, Barclays Bank PLC, Britain's largest bank, has long been known as a "squirearchy." For close to a century, the descendants of Quaker families that formed Barclays out of 20 smaller banks have dominated the institution. Only two nonfamily members made it to chairman in 96 years. "At the very top, there was a certain measure of inbreeding," says Raphael Soifer, a Brown Brothers Harriman & Co. analyst.

What amounted to institutionalized nepotism, though, never seemed a problem--until the past couple of years, when the bank was battered by a wave of bad loans and ill-advised expansion strategies. Now, it is facing the worst crisis in its history. In March, a shy and awkward Andrew R. Buxton, the latest family chairman and chief executive, faced openly hostile analysts and reporters and announced a $363 million pretax loss--the bank's first ever--after $3.8 billion in bad-debt provisions and a dividend cut. Britain's banking union, representing many of the bank's 78,000 employees, called the losses a result of "years of monumental incompetence." And the bank's finance director, Peter Wood, recently announced he was leaving for rival bank Standard Chartered PLC. Other defections are expected.

MISGUIDED STRATEGY. Things have come to a point where Barclays, facing growing pressure from institutional shareholders and employees, is said to be considering--horror of horrors--hiring an American banker to replace Buxton as chief executive while he remains chairman. Some of the names that have been floated as potential candidates include British expatriates John Tugwell, who now headsNational Westminster Bank PLC's operations in the U.S., and Dennis Weatherstone, chairman of J.P. Morgan & Co. A Morgan spokesman says it's bank policy not to comment on rumors. A Natwest spokesman referred questions on the search to Barclays.

Other wrenching changes will likely follow. A rival banker says he expects to see another reorganization at Barclays, on top of one completed a year ago, and possibly even Buxton's departure after the new chief executive is hired and the dust settles.

Just five years ago, Barclays appeared to be one of the world's best-managed banks, with profits of $2.1 billion. But when archrival NatWest temporarily overtook it in 1988 to become Britain's biggest bank, Barclays fought back with a misguided expansion strategy formed by then-Chief Operating Officer Buxton and his predecessor as chairman, Sir John Quinton. Barclays launched a $1.4 billion rights issue, the proceeds of which were used to finance a lending spree to real estate developers in Britain and the U.S.

Barclays' bad-debt list now reads like a developers' hall of shame--including disgraced property companies Olympia & York, Imry Holdings, and Mountleigh Group. Bad-debt charges for North America alone were $274 million in 1992.

Buxton admits that Barclays' credit controls were too loose in the past and that top management didn't know the full extent of the real estate lending. "We're a leader in many markets, but we've allowed our credit quality to erode our lead," he acknowledges. Many analysts believe further provisions will be needed, even after the $3.8 billion taken last year and 1991's $2.8 billion.

STAFF CUTS. What has most angered shareholders, however, is the lack of a consistent approach to the banking business. "Barclays has gone through about 17 different strategies in the past few years," says Alison Deuchars, a Lehman Brothers Securities bank analyst. Retail banking is a case in point: Barclays vainly tried to become a player in U.S. retail banking for years. But it was never able to develop a critical mass to achieve sufficient economies of scale and become a competitive player. Late last year, it sold the last of its U.S. branches to Bank of New York Co. at a price some observers have called a steal.

Despite the sizable legacy of sour property loans, Barclays appears to be stanching the losses. The bank is closing 350 British branches and reducing staff levels by 9,000 in addition to the 9,000 jobs that it shed last year. It has already slashed its New York work force by nearly 30%, and observers say the bank plans to narrow its focus there to its top 200 clients. The bank's earnings from operations improved 18% in 1992, despite the $363 million loss, and the Barclays de Zoete Wedd Ltd. investment banking division increased profits 13%, to $360 million.

These modest successes, however, are overshadowed by some very deep-rooted problems: continuing uncertainty over strategy and what one branch manager calls "appallingly poor morale." There is a risk that an outsider could make matters even worse. But after a century of affirmative action for family members, Barclays for now seems to be banking on new blood.