LONDON (Alliance News) - Barclays PLC Thursday detailed plans to shrink its investment bank with a new round of job cuts, while shifting billions of pounds' worth of risk-weighted assets into what it termed a non-core unit.
In a statement, the UK-based lender said it will cut around 7,000 jobs in its investment bank by 2016, with the unit to be shrunk to make sure it makes up just 30% of the group's total risk-weighted assets by 2016. In its current state, the investment bank makes up just over half of the group's risk-weighted assets.
The revamped unit, which will primarily operate in the UK and US and scale back in Asia, will be "origination led and returns focused" and will offer banking, equities, credit and certain macro products in a more capital-efficient way, Barclays said.
Scaling back the investment bank's presence in Asia marks a departure from the strategy pursued by former Chief Executive Bob Diamond, who wanted the bank to become a global powerhouse in the industry. The shift means Barclays' retail, credit card and Africa-based operations will play a more important role in determining earnings, which under the group's previous structure were reliant on the investment bank.
The changes to the investment bank are at the heart of an overall business reorganisation that will result in the group being split into four core businesses - personal and corporate banking, Barclaycard, Africa Banking, and the investment bank - as well as a "non-core" entity which will include assets that either don't fit with Barclays' strategy or with its targeted returns.
The non-core unit, often called a "bad bank", will be made up of about GBP115 billion of risk-weighted assets and around GBP400 billion in leverage exposure. Barclays said it wants to reduce the non-core unit's risk-weighted assets to around GBP50 billion and its leverage exposure to around GBP180 billion by the end of 2016. Around GBP90 billion of the risk-weighted assets within the unit's figure will be allocated from the investment bank and will include non-standard derivatives from the bank's fixed income, currencies and commodities business, as well as certain commodities and parts of the emerging markets business.
On top of that, the entirety of Barclays' European retail business will be included in the non-core unit, as well as about GBP9 billion of risk-weighted assets from the existing corporate, Barclaycard and wealth management units.
Barclays Chief Executive Antony Jenkins said that options for some of the assets in the non-core unit, including the European retail bank, include an initial public offering or a sale, while he maintained that the unit is not about bad assets but ones that are non-strategic.
Jenkins Thursday told journalists that he expects consolidation in Western European banking, which was a factor in placing the branches in the region outside Barclays' strategic areas of focus.
The revamp comes amidst pressure on Jenkins to boost returns across the group, which have been hurt by a decline in the investment bank's FICC business. Earlier in the week, Barclays reported a 41% decline in first-quarter income at the FICC unit. Increasingly stringent regulation on the capital that all banks must hold to withstand losses, along with the US Federal Reserve's quantitative easing measures, have contributed to an industry-wide decline in FICC, leading to questions about whether the slump is merely cyclical or also extends to a structural problem.
Jenkins said some of the pressures are structural as well as cyclical, adding that the regulatory framework has become clearer over the past year, meaning it is the "right time" to reposition. The CEO said the restructuring will create "a large amount of capital" within the group, creating the capacity to absorb future regulatory changes it can foresee.
Barclays said it expects to incur a further GBP800 million in costs on top of the GBP2.7 billion announced under a strategy update in February 2013.
Excluding those, Barclays updated its guidance for 2014 costs to about GBP17 billion in 2014, and about GBP16.3 billion in 2015. Each target is about GBP500 million lower than previous guidance. On top of those sums, Barclays expects to spend GBP1.6 billion in 2014 on costs unveiled under the February 2013 strategy update, and a further GBP500 million in 2015. Barclays is aiming for a GBP14.5 billion cost target in 2016 for its core business.
Its target return on average equity for the group was set at 12% or more for 2016.
"This is a bold simplification of Barclays. We will be a focused international bank, operating only in areas where we have capability, scale and competitive advantage," Jenkins said in a statement. "In the future, Barclays will be leaner, stronger, much better balanced and well positioned to deliver lower volatility, higher returns, and growth."
Jenkins later told analysts the restructuring was within potential new legal requirements in the UK, where initial legislation has been passed on ringfencing, and new rules in the US, where Barclays is obliged to create an intermediate holding company for its subsidiaries by July 2016, in mind.
Barclays shares were Thursday quoted at 260.70 pence, up 7.2%, putting the bank at the top of the FTSE 100.