The notion of a ‘bad bank’ seems rather passé: RBS spurned the idea of splitting into two back in November, when it said it wanted to create an internal bad bank instead.
Now Barclays has announced plans to put £400bn of ‘non-standard’ loans and assets into its very own bad bank. It also wants to cut 14,000 jobs – 10% of its total workforce. The plan, says chief exec Antony Jenkins, is to create a ‘leaner, stronger, much better balanced bank’.
The crux of the issue is this: until recently, the majority of the UK’s largest banks (RBS, HSBC, Barclays etc) concentrated much of their efforts on risky-but-high-yielding investment banking. Lately, though, that’s gone downhill: yesterday, HSBC posted first quarter figures showing its investment banking profits had dropped by a fifth. The day before that, Barclays said profits at its investment arm slid by almost third in the first three months of the year.
So all the banks are taking a long, hard look at themselves. In February, Barclays announced 10,000-12,000 job cuts, but it’s now decided to raise that to 14,000, with 7,000 of them going in its investment banking arm (2,000 will go this year, another 5,000 will go by 2016). A lot of those will be in Asia, where its investment bank has a huge presence.
Once the investment bank has been made lean and mean, Barclays says it wants to narrow its focus to that and three other areas: ‘personal and corporate banking’ (which includes its corporate, personal and wealth management divisions), Barclaycard and Africa banking (which it has been praised for – MT travelled around Uganda with Jenkins in 2011 and was impressed).
So Barclays – one of the leaders of the bad boys during the early noughties – is polishing up its halo. The plan is, said Jenkins, to strengthen its balance sheet to positively heavenly levels. The new target for its equity tier one ratio – how much it lends vs how much it actually has in its coffers – is 11% by 2016, up from 10.5% before. Not bad.
Shares rose 4.79% this morning, so investors clearly approve. Jenkins, meanwhile, said he wants to ‘create a Barclays that does business in the right way, with the right values, and delivers the returns that our shareholders deserve’. Although he could make a good start by not annoying shareholders so much they feel they have to stand up at the AGM and proclaim their dissatisfaction in public. That would be a good start…