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8 May, 2014 14:22

Barclays ‘bold simplification’ will slash 19,000 jobs, create ‘bad bank’

Barclays ‘bold simplification’ will slash 19,000 jobs, create ‘bad bank’

Britain’s second-biggest bank will eliminate 19,000 jobs over the next three years, with major cuts aimed at its investment bank, signaling the lender has given up becoming a major player in global investment banking.

Barclays will phase out about 15 percent of its staff of 140,000. By 2016, about 7,000 investment bankers in London and New York out of the total 26,000 will be given pink slips.

The major overhaul will cut 14,000 positions this year, 2,000 more than announced in February. Another 5,000 jobs will be cut in 2015-2016.

“This is a bold simplification of Barclays,” the bank’s chief executive, Antony P. Jenkins, said. Jenkins took over the bank after CEO Bob Diamond resigned following a slew of scandals and fines, including the Libor-rigging scandal.

This is Jenkins’ second strategic review of the bank, and he thinks it will take 5-10 years before it can regain public trust and not simply be seen has a high risk, high reward corporate beast.

Barclays PLC shares soared on the news, with shares up 6.98 percent at 15:00 London time.

Barclays chief executive Antony Jenkins (Reuters / Luke MacGregor)

Enter the ‘bad bank’

Part of the ‘re-set’ includes setting up a “bad bank” an internal bank that will take on £115 billion ($195 billion) of non-core assets like that will eventually be sold or run down. Physical commodities outside of precious metals and the European retail branch networks in Italy, France, Spain and Portugal will be part of the new ‘bad bank’.

The company hopes to focus more on retail activates within Britain, its Barclaycard credit card division, and African business.

Setting up a ‘bad bank’ is a way for Barclays to distinguish between past ‘bad’ business and the future strategy the group wishes to pursue. It was a technique used by many banks following the 2008-2009 financial crisis and subsequent recession.

The bank anticipates the changes to take an additional £800 million in restructuring costs. Last year the bank said they expected the overhaul to cost about £2.7 billion.

“We will be a focused international bank, operating only in areas where we have capability, scale and competitive advantage,” Mr. Jenkins said on Thursday. “In the future, Barclays will be leaner, stronger, much better balanced and well positioned to deliver lower volatility, higher returns, and growth.”

First quarter profit was disappointing, dropping 5 percent in the first three months of 2014 hurt by fixed income, forex and commodity trading. Profits in 2013 dropped 32 percent, in part due to a poor performance by the investing team. Even though profits plummeted the bonus pool increased by nearly $4 billion. Senior managers refused their 2013 bonuses.