March 1, 2016 / 11:27 AM / 3 years ago

More Barclays upheaval after grim Q4 for investment bank

LONDON, March 1 (IFR) - Barclays plans to speed up the shrinking of its investment bank, part of a raft of changes by new chief executive Jes Staley after the unit had its worst quarter since the financial crisis.

Staley said on Tuesday he plans to sell Barclays’ African operations, accelerate the run-down of unwanted assets and halve the dividend in the British bank’s latest attempt to improve profitability.

Barclays’ investment bank made a £146m loss in the fourth quarter from a year-earlier pretax profit of £35m and Staley said he was sharpening plans to make it a transatlantic business focused on its home markets of Britain and the United States, but stopped short of a full-blown restructuring of the investment bank.

The unit’s income slumped 12% from a year ago to £1.46bn, its lowest level since at least 2009 when the bank first started reporting quarterly income.

Barclays also expects the investment bank’s income to be down in the first quarter from a year earlier.

“Investment banking income for January and February was roughly in line with this time last year, although March last year was a particularly strong month and we don’t expect nearly as strong a month (this year),” Tushar Morzaria, finance director, told reporters on a conference call.

Barclays last month said investment bank boss Tom King will leave on March 4, and it is actively looking for an outsider to take over, sources have said.

“We will take our time,” said Staley, the former JP Morgan investment bank chief who became Barclays CEO in December. “Right now we’ll rely on Tom’s management team and on an interim basis they will report into me.”

Barclays’ equities income in the fourth quarter slumped 25% from a year earlier, its advisory and investment banking fees fell 13% and macro income fell 12%. Credit income rose 28%.

“Core investment banking revenues showed a very poor performance in equities in our view and the overall outlook for Q1 is that trading is likely to be sub-par,” said Joseph Dickerson, analyst at Jefferies.

The weak end to the year tarnished a previously decent year for Barclays’ investment bank, and will renew scrutiny on its future shape and size.

The business made a £1.61bn pretax profit last year, up 17% from 2014. But its return on tangible equity was still only 6%, well below its cost of capital.

Income was flat, while costs fell 3%. For the year, equities income dipped 2%, investment banking fees were down 1%, but macro income rose 4%.

The investment bank’s risk-weighted assets were reduced to £108.3bn from £122.4bn a year before, and less than half the £219bn before a plan to shrink began in May 2014.

Staley said last month the investment bank would pull back hard from Russia, Brazil and seven countries in Asia. That would cut about 1,200 jobs on top of 7,000 cuts in the division in the last three years, or more than a quarter of staff in total.

Like many of its European rivals Barclays has scaled back its investment banking ambitions as tougher regulations and more difficult markets have eroded returns.

Staley said on Tuesday the aim is for an investment bank “anchored in the two financial centres of the world, London and New York.”

Barclays said it will put an extra £8bn of assets into its non-core book it wants to sell or run-down, including new assets from the investment bank, Africa, Europe and its Asian wealth business. It reduced non-core assets by £29bn last year to £47bn and said it will run down the portfolio hard this year, aiming to cut them to less than £20bn by end-2017.

Barclays said it will seek to reduce its 62% stake in Barclays Africa Group to allow it to deconsolidate the business in the next 2-3 years.

Staley also revealed a new structure to meet new UK rules. Barclays will set up a UK personal and business franchise, which will become its UK “ring-fenced” business, and a separate corporate and international division, which will include the investment bank.

Staley, Barclays’ fourth chief executive in the last six years, set out his plan as Barclays reported a 2015 pretax profit of £2.1bn, down 8% on the year. It set aside another £1.45bn to compensate UK customers mis-sold insurance products, taking its bill for the PPI scandal to £7.42bn.

Staley said he plans to cut the dividend to 3p a share in the next two years, from 6.5p for 2015, to fund its more aggressive run-down of assets. The bank’s shares tumbled 10% to 155 pence.

One bright spot was the bank’s capital. Its common equity Tier 1 ratio improved to 11.4% from 10.3% at the start of the year, and Staley said there was no need to raise capital. (Reporting by Steve Slater)

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