Jes Staley might have breathed a sigh of relief after seeing Barclays pass the recent bank stress test with a better-than-expected margin, but the new chief executive still faces a lengthy to-do list.
In its latest attempt to siphon off unprofitable parts of its business, the bank is selling its Italian retail branch network at a £200m loss. Some 89 branches are to be offloaded, including a portfolio of its assets and liabilities, to MedioBanca subsidiary CheBanca! (if only Britain's banks had such exciting names).
CheBanca! will buy the branches with 220,000 clients, residential mortgage loans worth €2.9bn (£2bn) and 620 staff. Barclays is hoping to ditch its retail banking operations on the continent as it slims down and focuses on areas with higher profitability and scale.
While the bank said the financial impact of the deal would depend on foreign exchange movements, it anticipated that the sale will reduce its risk-weighted assets by about £800m and will result in a small decrease in its capital ratio. The bank is though, likely to be left with some £10bn of Italian mortgages, which it’s trying to sell. Barclays had £13.5bn of Italian residential mortgages at the start of the year.
The latest slimming effort follows the bank’s sale of its Portuguese retail and small business banking arm in August and prior to that, its Spanish banking operations to CaixaBank last year. CaixaBank paid €800m (£632m) in cash for Barclays’ retail banking, wealth management and corporate banking businesses.
‘This transaction is further evidence of the reshaping of Barclays Group to focus on our core businesses,’ said Jes Staley, the bank’s new chief executive. ‘We continue to make progress in the reduction of Barclays non-core as we target risk-weighted assets of around £20bn at the end of 2017.’
Staley, who used to run JPMorgan’s investment bank, has only just started as Barclays CEO, but is already under pressure to lay out a precise vision for the investment bank, where returns are the weakest in the group and costs need to be cut.
The selling spree comes as former Barclays boss Antony Jenkins revealed he thought up to half of all Britain’s high street bank branches could close in the next decade. ‘I estimate that there will be somewhere between a 20% and 50% reduction over the next ten years,’ he said.
While there have been numerous twists and turns in strategy in recent years, Barclays’ attention is currently on core US and UK markets and cutting around 7,000 jobs. The recruitment of Staley himself has been costlier than anticipated, as Barclays had to buy him out of bonuses from JPMorgan – initially predicted to cost around £1.9m. That has steadily risen to over £2m thanks to the increasing value of JP Morgan’s shares.
As Barclays are paying Staley up to £8.25m a year as it is, fingers are probably very much crossed his streamlining approach pays off - and soon.