News Column

Renewed pressure on Barclays boss after investment bank profits crash: Share price down by 5% ahead of strategy review Jobs under threat with continued cost reductions

May 7, 2014

Sean Farrell and Jill Treanor



Barclays' chief executive, Antony Jenkins, was under renewed pressure last night to devise a clear strategy for the bank after its investment banking division reported an almost 50% fall in profits in the first three months of the year.

The revenues nose-dive at the division built up under Jenkins' predecessor, Bob Diamond, triggered a 5% fall in Barclays' share price before tomorrow's publication of a strategy review.

Jenkins, named as Diamond's replacement in the wake of the 2012 Libor rigging scandal, is reportedly considering pulling out of loss-making high street operations in continental Europe, scaling back the bond trading division and setting up a non-core division. Jobs are likely to be under threat.

The first quarter trading updating showed that pre-tax profit at the investment banking division - the traditional powerhouse of the bank - fell by 49% to pounds 668m largely because of a downturn in the part of the business that trades commodities, bonds and currencies. That performance dragged the total group's profits down by 5% to pounds 1.7bn, despite a 20% rise in the high street bank.

The retail arm did not take a new provision for payment protection insurance although there was a spike in claims in March.

Sandy Chen, analyst at Cenkos Securities, said: "Barclays' management challenge is this: the investment bank generated 37% of group income in the first quarter, but it accounted for 42% of operating expenses. The investment bank reported a 75% cost-income ratio in the first quarter versus 63% [the same time a year ago], and a 46% compensation: income ratio - even amongst investment banking peers, Barclays is carrying a higher cost structure."

Jenkins was criticised for the bank's policies at last month's annual general meeting, particularly after he defended a decision to increase bonuses in 2013 even though profits fell. He warned the bank risked a "death spiral" of staff leaving without the higher bonuses.

He said his strategy review "will address issues underlying the performance challenges we have recently experienced, including positioning the investment bank for the new operating and regulatory environment".

Barclays' new finance director, Tushar Morzaria, would not elaborate on the strategy review before tomorrow's announcement but said plans already under way to pull out of businesses such as commodities trading had already reduced revenue.

The investment bank's pay bill fell 20% to pounds 1.1bn in the first quarter but rose as a percentage of income owing to falling revenues. Morzaria said pay had fallen less than income because bonuses for previous years were included in the figures. He said Barclays was getting a grip on investment bankers' pay.

"Our fixed compensation was down 8% year-on-year . . . it gives you a sense of how we are managing our cost base there."

Morzaria said Barclays had made 450 directors and managing directors redundant in the first quarter. He added that cuts at the business "may or may not have prompted some people to move on" but that the investment bank still had a strong "bench" of top bankers.

Its outlook statement indicated cutting costs of the business - a potential indication of job cuts - was likely to continue. "We continue to be cautious about the trading environment and . . . remain focused on structurally reducing the cost to improve returns," the bank said.

Captions:

Barclays HQ in Canary Wharf, London Photograph: Linda Nylind for the Guardian



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Source: Guardian (UK)


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