Barclays to Streamline Investment Banking Arm

Barclays to Overhaul Investment Banking Arm

Facing the ire of investors for increasing its 2013 bonus pool after reporting lower profits, Barclays PLC (NYSE:BCS) is planning to streamline its Investment Banking segment to improve profitability. This was first reported by The Financial Times on Thursday.

Barclays has already started the review of its Investment Banking division, which is expected to be completed in the next few months. This is likely to lead to more job cuts as well as departure of the unit’s co-heads – Tom King and Eric Bommensath. However, Barclays denied any changes at the executive level in its Investment Banking unit.

Last month, during the earnings conference call, Antony Jenkins, Barclays’ CEO announced the reduction of nearly 12,000 jobs, out of which 400 were in the Investment Banking segment. The cuts were announced to mitigate the company’s lower profits amid tougher regulations and sluggish economic recovery.

However, Barclays increased the overall bonus pool by 10% to £2.4 billion in 2013. Further, bonus pool for the Investment Banking division rose 13% to £1.6 billion, despite the segment reporting a 37% year-over-year fall in profit before tax.

The rise in bonus pool in spite of decreased profits angered investors, who questioned the feasibility of such a move. Notably, the CEO tried to justify the rise by stating that the decision was taken to stop attrition among investment managers.

Further, Barclays’ share price has declined nearly 9.8% since the earnings release on Feb 12. Additionally, the Zacks Consensus Estimate for 2014 fell 3% to $1.95 over the last 30 days.

We believe that stringent regulations and weak trading in fixed income have led to increased pressure on returns from Investment Banking segment. Additionally, in 2013, fixed income commodity currency (FICC) income fell 17% to £5.5 billion.

Further, major global banks like JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and Deutsche Bank AG (DB) anticipate the slump in fixed income to continue into this year. Given this scenario, Barclays’ plan to review and streamline its Investment Banking segment will likely boost profits going forward.