U.K. Lender to Cut Investment Bank Nearly in Half, Retrench in Western Europe.
LONDON — Barclays BARC.LN -0.88% PLC, abandoning its ambitions to be an elite global bank, said it would cut its investment bank nearly in half and exit retail-banking businesses in Western Europe.
LONDON — Barclays BARC.LN -0.88% PLC, abandoning its ambitions to be an elite global bank, said it would cut its investment bank nearly in half and exit retail-banking businesses in Western Europe.
The U.K. lender said it would cut 7,000 jobs at its investment bank by 2016, part of efforts to trim 19,000 positions across all the bank's divisions over the next three years.
The bank faces many of the same difficulties that are casting a shadow over much of the global investment-banking landscape. Some, like Barclays, which have been especially reliant on revenue from fixed-income, currencies and commodities trading, have seen profits fall sharply as clients have pulled back from bond trading because of persistently low and stable interest rates. A wave of investment-banking scandals also has pushed up compliance costs and changed the economics of the business.At Barclays, Chief Executive Antony Jenkins described his bank's retrenchment strategy as "a bold simplification." He said the bank would look to sell its retail-banking businesses in countries such as France, Spain and Italy. The retreat is an effort to boost the bank's profitability by quitting businesses where it lacks the heft to compete with larger rivals.
"It's just no longer doable for us to be a global, universal bank," Michael Rake, deputy chairman of Barclays, said in an interview.
In London, Barclays's shares climbed 7.9%, to £2.62 ($4.44).
Barclays said it would create a "bad bank" division consisting of £115 billion ($195 billion) of assets not profitable enough to keep. They include all of its European retail-banking assets and some parts of the investment bank, as well as other assets no longer considered core to the bank's business.
The slimmed-down investment-banking unit will represent no more than 30% of the company's risk-weighted assets, down from just over half.
The new strategy, which top Barclays executives and directors have been working on since last year, is the latest effort by Mr. Jenkins at settling on a strategy for the bank. Since mid-2012, when Barclays's top management team resigned following an interest-rate-rigging scandal, Barclays has lurched between crises and recently suffered an exodus of senior executives. Some Barclays directors have privately worried about the bank's lack of a clear strategy, according to a person familiar with the matter, and some analysts and investors have raised concerns about Mr. Jenkins's grasp on the CEO job.
"Everybody is now behind Antony," Mr. Rake said.
To cut costs, Barclays's investment bank will focus on less risky activities, which require less capital, and those in which jobs can be done by computers. Investment-banking units facing the ax include nonstandard fixed-income derivatives, some physical commodities trading and emerging-markets products, Barclays said. The new-look investment bank will be built around its U.K. and U.S. businesses, cutting back in Asia. The franchise will concentrate on its equities, credit and certain foreign-exchange businesses.
The changes mark a sharp turn in strategy for Barclays, which launched a daring bid to scale up its investment-banking operations in 2008 with the acquisition of Lehman Brothers Holdings Inc.'s U.S. operations after the firm collapsed during the financial crisis.
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Initially touted as an opportunistic move by then-Chief Executive Bob Diamond, the deal soon proved a headache for management. The bank was regularly chastised by British politicians over its decision to pay large bonuses to staff during a time of austerity, and regulators bore down on its riskiest activities. The plan took a further hit when its architect, Mr. Diamond, left the bank in 2012 after it admitted to trying to manipulate the London interbank offered rate, or Libor, and paid $450 million to settle allegations by U.S. and U.K. authorities.
On his appointment Mr. Jenkins, who previously headed Barclays's retail bank, pledged to improve returns. However, he was unable to control costs at the investment bank, analysts said.
Meanwhile, the division has reported weaker profit due to the trading slump, sparking calls from investors for the bank to cut large swaths of the unit.
This year, Barclays said it increased its bonus pool despite lackluster results, sparking a wave of complaints from investors. In a newspaper interview, Mr. Jenkins said he had no choice if he wanted to avoid a "death spiral" with the bank's main rainmakers defecting to rivals.
At last month's annual general meeting, just 76% of voting shareholders approved the 2013 pay plan. Soon after, several top Barclays executives quit, including Barclays Americas Chief Executive Skip McGee.
On Tuesday, Barclays said revenue fell 41% in its fixed-income, currencies and commodities division in the first quarter, halving the investment bank's operating profit. It was an even bigger fall than analysts had expected and compared with roughly 20% declines at rivals.
On Thursday, Mr. Jenkins said the investment bank caused "an unacceptable drag" on returns. The decision to pay out large bonuses last year was to ensure that the next generation of investment-banking staff stayed at the lender during the revamp, he said.
The new plan will take several years to play out. Barclays expects to incur £800 million of costs on top of the original £2.7 billion in restructuring expenses it outlined in February 2013. The cleaned-up Barclays should generate a return on equity greater than 12%, the bank said, up from 6.4% in the first quarter.
"We will not try to do everything everywhere," Mr. Jenkins said.
Write to Max Colchester at max.colchester@wsj.com and David Enrich at david.enrich@wsj.com
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