London: Barclays Plc’s new chief executive pledged a fresh course for the British lender on Thursday, axing at least 3,700 jobs and pruning its investment bank as he seeks to rebuild its reputation and boost profitability after a series of scandals.
In an attempt to distance the bank from the aggressive, high-risk culture championed by his predecessor, Antony Jenkins said Barclays would put ethics above earnings at the bank, which has become a focus for public anger at the excesses of the financial sector.
“Barclays is changing. There will be no going back to the old way of doing things. We get it, we are changing the way we do business, we are changing the type of business we do,” Jenkins told a news conference.
“We must act at all times with good values.”
Jenkins unveiled his grand plan, dubbed “Project Transform”, at London’s Royal Horticultural Halls, an Edwardian exhibition space well away from the bank’s skyscraper headquarters in Canary Wharf and just a short walk from parliament, where lawmakers have heavily criticised the bank for its misdeeds.
Keen to convince a sceptical public that Barclays can change, Jenkins has cut the average bonus for its investment bankers, halted trading in soft commodities “for speculative purposes” and closed its structured capital markets division, which one lawmaker last week said advised clients on “industrial scale tax avoidance”.
Jenkins said he had full confidence in his executive team but declined to answer questions about the future of Rich Ricci, head of Barclay’s investment bank, where many of the scandals emanated.
“I can’t predict the future,” he said.
Investors applauded the bank’s plans to raise its dividend and slice £1.7 billion in annual costs, including cutting 1,800 jobs in corporate and investment banking and 1,900 in its European retail and business banking.
“A commitment to cost reductions and evidence of cost control in the investment bank bonus pool have spurred today’s renewed optimism,” Simon Maughan, strategist at Olive Tree Securities, said.
A positive for UK banks
Jenkins, 51, has said he expects “Project Transform”, his plan to revamp the bank, to take five to 10 years and has told staff they should leave if they do not want to sign up to the new standards.
He has cut the average bonus for investment bankers to £54,100 for last year, down 17% on the year. It will pay £1.85 billion in bonuses, down 14%.
Jenkins plans to focus investment in Britain, the US and Africa, and reduce the bank’s presence in continental Europe and Asia. Nearly one in three Barclays’ branches in continental Europe, or over 340 offices, according to Reuters calculations, will be closed.
He will scale back the investment bank’s equities and advisory businesses in continental Europe and Asia and refocus its retail businesses in Italy, Spain, Portugal and France on mass affluent customers.
Jenkins aims to cut the bank’s cost base to £16.8 billion in 2015, excluding one-off costs to achieve that of 2.7 billion over the next three years, and lift its dividend to achieve a 30% payout ratio.
The bank will pay a dividend of 6.5 pence per share for 2012 from 6p in 2011, which analysts said was encouraging given that UK regulators are telling banks to conserve capital.
“We take this as a positive for the UK banks—the fact that a bank was allowed to increase its dividend in a backdrop where the Bank of England has been talking about capital holes in the UK banks,” said Chira Barua, senior analyst at Sanford Bernstein.
A good start to the year
Barclays is still recovering from the political furore that followed its $450 million fine for manipulating benchmark interest rates in June. The ensuing storm triggered the departure of its then chief executive, former Wall Street trader Bob Diamond, and chairman Marcus Agius.
Its bill, meanwhile, to compensate customers for mis-sold products has hit £3.5 billion and investigations are continuing into whether it correctly disclosed fundraisings from Middle East investors.
The Financial Services Authority and Serious Fraud Office are probing certain commercial arrangements between Barclays and Qatari investors related to two 2008 fund raisings.
Unveiling the strategic plan alongside annual results, the bank reported a 2012 pretax profit of £246 million, down from 5.9 billion in 2011 due to the cost of compensating customers and losses on the value of its own debt.
However, the bank said its adjusted pretax profit for 2012 was £7.05 billion, up 26% on the year and in line with the average forecast by analysts.
Pretax profit at the investment bank rose by 37% to £4.1 billion, stronger than expected. Income in the investment bank was down 2% from the previous quarter, but up 13% on a year ago, with fixed income, equities and advisory arms all up.
The bank said it had a good January. “We’ve had a good start to the year, pretty much across the board and all businesses so we move into the rest of 2013 with confidence,” finance director Chris Lucas told reporters on a conference call. REUTERS