Barclays Plc rose by more than 5% on Thursday after the lender announced it will axe 19 000 jobs through 2016, 7 000 of which in its investment banking business, and create a “bad bank” as part of its strategic revamp aimed at boosting profitability at its core divisions.
The UK bank will cut 14 000 positions this year, or 10% of its total headcount, up from 12 000 previously announced in February, including 2 000 jobs at its investment banking business. The remaining 5 000 cuts will be made through the next 3 years.
The workforce reductions are part of Chief Executive Antony Jenkins strategic overhaul, aimed at curbing trading operations in Barclays investment bank, once the group profit engine, and boosting profitability at its core operations.
As part of Mr. Jenkins attempt to create a “leaner, stronger, much better balanced” bank, Barclays will park risk-weighted assets valued at 90 billion euros from the investment banking division in the “bad bank”. The transfer would cut the units share of the firms assets from currently 50% to 30% by 2016, increasing the weight of the lenders African business, its retail operations in Britain and its credit card division, known as Barclaycard.
The overhaul plans come days after the UK bank announced first-quarter profits at its investment unit almost halved, dragged by a 41% decline in profits from currencies, commodities and fixed-income trading.
The creation of a separate entity follows the recent example of other lenders, such as the state-owned Royal Bank of Scotland. Its purpose is to enable the bank to show how well its core divisions are operating, while the problem assets are isolated in the “bad bank”.
Andrew Coombs, an analyst at Citigroup Inc. in London, wrote in a note, cited by Bloomberg: “The revised strategy is sensible and should be well received. The shift in business mix from investment banking toward retail and commercial could potentially lead to a re-rating in Barclays’ shares.”
Barclays said that its “personal and corporate banking” unit, which will include British retail, corporate and wealth management businesses will overtake investment banking as its biggest division.
The UK lender is also planning of scaling back most of its operations in Asia, which were founded by the firms previous Chief Executive Bob Diamond as a push to make Barclays a global investment bank. However, Mr. Diamond was ousted from his position and replaced by Antony Jenkins in August 2012 after a scandal over the tampering of benchmark interest rates. According to Mr. Jenkins view, Barclays will focus on the UK and US markets.
Jenkins will also move all of the lenders European retail operations in France, Italy, Spain and Portugal, which lost 964 million pounds last year, as well as some corporate and Barclaycard assets in the 400-billion-pound “bad bank”, dubbed “Barclays Non-Core”.
“This is a bold simplification of Barclays,” Jenkins said, cited by the Financial Times. “We will be a focused international bank, operating only in areas where we have capability, scale and competitive advantage.”
Barclays said that Chief Executive Antony Jenkins latest strategic plan will cost 800 million pounds, but as a result it expects to raise its dividend payout ratio to 50% of adjusted earnings, up from the current guidance of 40%.
Barclays Plc rose by 5.65% to 257.04 pence by 09:39 GMT in London, marking a one-year change of -9.89%. The British lender is valued at 39.89 billion pounds. According to the Financial Times, the 27 analysts offering 12-month price targets for Barclays Plc have a median target of 290.00 pence, with a high estimate of 365.00 pence and a low estimate of 203.22 pence. The median estimate represents a 19.19% increase from the previous close of 243.30 pence.
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