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Barclays, on a Selling Spree, Aims to Get Back to Basics Barclays Shrinks, but Says Its Core Business Is Stronger
(about 7 hours later)
LONDON — Barclays has been a bit of a punching bag among British banks in recent years.LONDON — Barclays has been a bit of a punching bag among British banks in recent years.
The lender was the first bank to admit wrongdoing four years ago over manipulation of the London interbank offered rate, or Libor, a global benchmark interest rate.The lender was the first bank to admit wrongdoing four years ago over manipulation of the London interbank offered rate, or Libor, a global benchmark interest rate.
The controversy eventually spread across many of the world’s biggest banks, including investment banking rivals Citigroup, Deutsche Bank, JPMorgan Chase and UBS, yet it has continued to weigh heavily on Barclays’ reputation, particularly at home. Barclays agreed last week to pay $100 million to settle an investigation in the United States by 44 states into accusations of bid-rigging related to Libor.The controversy eventually spread across many of the world’s biggest banks, including investment banking rivals Citigroup, Deutsche Bank, JPMorgan Chase and UBS, yet it has continued to weigh heavily on Barclays’ reputation, particularly at home. Barclays agreed last week to pay $100 million to settle an investigation in the United States by 44 states into accusations of bid-rigging related to Libor.
The bank’s former chief executive, Antony Jenkins, spent three years trying to change the bank’s culture — an initiative for which he was highly praised before he was let go in July last year.The bank’s former chief executive, Antony Jenkins, spent three years trying to change the bank’s culture — an initiative for which he was highly praised before he was let go in July last year.
And a return to robust profits — and a healthy dividend — have remained elusive as Barclays sells or closes riskier businesses while trying to maintain its stature as an international investment bank. The company’s shares are trading about 17 percent lower than they were before the Libor scandal.And a return to robust profits — and a healthy dividend — have remained elusive as Barclays sells or closes riskier businesses while trying to maintain its stature as an international investment bank. The company’s shares are trading about 17 percent lower than they were before the Libor scandal.
The bank, like many of its peers, also is grappling with the potential impact of Britain’s vote to leave the European Union, the so-called Brexit.The bank, like many of its peers, also is grappling with the potential impact of Britain’s vote to leave the European Union, the so-called Brexit.
But the current chief executive, James E. Staley, the former head of JPMorgan’s investment bank, who joined Barclays in December, says he is confident that Barclays is strong at its core and key businesses are performing better than many of its peers.But the current chief executive, James E. Staley, the former head of JPMorgan’s investment bank, who joined Barclays in December, says he is confident that Barclays is strong at its core and key businesses are performing better than many of its peers.
He has accelerated the sale of businesses that Barclays no longer considers essential to its operations — a division the bank calls Barclays Noncore.He has accelerated the sale of businesses that Barclays no longer considers essential to its operations — a division the bank calls Barclays Noncore.
At the heart of the new Barclays are its British consumer bank and its trans-Atlantic investment bank, which combined had an 11 percent return on tangible equity — a measure of profitability — in the second quarter, excluding one-time items. That compares to the 5.8 percent for the company as a whole at the end of the second quarter.At the heart of the new Barclays are its British consumer bank and its trans-Atlantic investment bank, which combined had an 11 percent return on tangible equity — a measure of profitability — in the second quarter, excluding one-time items. That compares to the 5.8 percent for the company as a whole at the end of the second quarter.
“This already impressive profitability of these businesses today — businesses which represent the future of Barclays — emphasizes again why our strategy is focused on delivering to our shareholders the earnings power of these core franchises, free from the drag of noncore and to do this as quickly as possible,” Mr. Staley said in a conference call with analysts last month.“This already impressive profitability of these businesses today — businesses which represent the future of Barclays — emphasizes again why our strategy is focused on delivering to our shareholders the earnings power of these core franchises, free from the drag of noncore and to do this as quickly as possible,” Mr. Staley said in a conference call with analysts last month.
By comparison, HSBC, a larger banking rival that is setting its sights on growth in Asia, said earlier this month that it did not expect to have a return of tangible equity of 10 percent before the end of 2017. HSBC had a return on tangible equity of 9.3 percent in the first half of this year.By comparison, HSBC, a larger banking rival that is setting its sights on growth in Asia, said earlier this month that it did not expect to have a return of tangible equity of 10 percent before the end of 2017. HSBC had a return on tangible equity of 9.3 percent in the first half of this year.
Mr. Staley has committed to closing the noncore division by next year. Accelerated sales of businesses are expected to deliver more than 1 billion pounds, or about $1.3 billion, in cost savings beginning in 2017.Mr. Staley has committed to closing the noncore division by next year. Accelerated sales of businesses are expected to deliver more than 1 billion pounds, or about $1.3 billion, in cost savings beginning in 2017.
The bank also is slashing assets as weighted by risk in those businesses — primarily related to its derivatives portfolio — to £20 billion by the end of next year. The noncore business had £46.7 billion in risk-weighted assets at the end of the second quarter.The bank also is slashing assets as weighted by risk in those businesses — primarily related to its derivatives portfolio — to £20 billion by the end of next year. The noncore business had £46.7 billion in risk-weighted assets at the end of the second quarter.
“We’re planning to do as much as we can to get deals signed for all the operating businesses that we have left” this calendar year, Harry Harrison, the head of Barclays’ noncore business, said in an interview. “If we could get to closing all of those deals this year too, that would be really great. That would really then focus 2017.”“We’re planning to do as much as we can to get deals signed for all the operating businesses that we have left” this calendar year, Harry Harrison, the head of Barclays’ noncore business, said in an interview. “If we could get to closing all of those deals this year too, that would be really great. That would really then focus 2017.”
In a call with analysts last month, Tushar Morzaria, the bank’s chief financial officer, described many of the derivatives in the bank’s noncore portfolio as “vanilla” and said the book was well hedged and Barclays was not a forced seller.In a call with analysts last month, Tushar Morzaria, the bank’s chief financial officer, described many of the derivatives in the bank’s noncore portfolio as “vanilla” and said the book was well hedged and Barclays was not a forced seller.
In the second half of this year, the bank is expected to complete the sale of its credit card business in Portugal and Spain, its wealth and investment management operations in Singapore and Hong Kong, its risk analytics and index solutions business, and its Italian retail banking operations.In the second half of this year, the bank is expected to complete the sale of its credit card business in Portugal and Spain, its wealth and investment management operations in Singapore and Hong Kong, its risk analytics and index solutions business, and its Italian retail banking operations.
The sales of those businesses alone are expected to reduce Barclays’ annual expenses by about £250 million and reduce its work force by 1,500 employees as they transfer along with those operations. Risk-weighted assets also are expected to be reduced by some £3 billion from the sales.The sales of those businesses alone are expected to reduce Barclays’ annual expenses by about £250 million and reduce its work force by 1,500 employees as they transfer along with those operations. Risk-weighted assets also are expected to be reduced by some £3 billion from the sales.
The closings of the sale of the index business to Bloomberg, the media and financial information company, and the purchase of the Italian retail bank by CheBanca, a member of the Mediobanca Group, are expected in the third quarter. Others will come later this year.The closings of the sale of the index business to Bloomberg, the media and financial information company, and the purchase of the Italian retail bank by CheBanca, a member of the Mediobanca Group, are expected in the third quarter. Others will come later this year.
Barclays also announced in April that it was in exclusive discussions with the private equity firm AnaCap Financial Partners over the sale of its retail banking operations in France, as well as its life insurance business and wealth and investment management operations.Barclays also announced in April that it was in exclusive discussions with the private equity firm AnaCap Financial Partners over the sale of its retail banking operations in France, as well as its life insurance business and wealth and investment management operations.
The outcome of the June 23 Brexit referendum isn’t expected to have an impact on its ability to complete the sale of assets in the noncore division, Barclays said.The outcome of the June 23 Brexit referendum isn’t expected to have an impact on its ability to complete the sale of assets in the noncore division, Barclays said.
“Things like Brexit can throw you off course maybe for a couple of weeks as people get distracted,” Mr. Harrison said. “I think the assets we’re trying to sell and the people we’re trying to sell to still make sense” after the Brexit vote.“Things like Brexit can throw you off course maybe for a couple of weeks as people get distracted,” Mr. Harrison said. “I think the assets we’re trying to sell and the people we’re trying to sell to still make sense” after the Brexit vote.
Increasing the pace of sales in its noncore business has not come without some pain.Increasing the pace of sales in its noncore business has not come without some pain.
Barclays said in March that it would slash its dividend this year and next year to fund the increased pace of sales.Barclays said in March that it would slash its dividend this year and next year to fund the increased pace of sales.
Dividends are considered sacrosanct for bank investors in Britain, and smaller investors have complained at Barclays’ annual meetings in recent years about the size of the dividend versus the size of executive bonuses.Dividends are considered sacrosanct for bank investors in Britain, and smaller investors have complained at Barclays’ annual meetings in recent years about the size of the dividend versus the size of executive bonuses.
The bank’s profit declined 41 percent in the second quarter as impairments and other costs associated with the noncore business weighed on its results. That included an impairment of £372 million related to the French operations that have been targeted for sale.The bank’s profit declined 41 percent in the second quarter as impairments and other costs associated with the noncore business weighed on its results. That included an impairment of £372 million related to the French operations that have been targeted for sale.
Much of the progress in reducing the noncore business has been tracked in Barclays offices: Staff members ring bells every time a line item of risk-weighted assets is reduced, Mr. Harrison said. The bells have been ringing “very often,” he said.Much of the progress in reducing the noncore business has been tracked in Barclays offices: Staff members ring bells every time a line item of risk-weighted assets is reduced, Mr. Harrison said. The bells have been ringing “very often,” he said.
“Everybody is pushing in the same direction. We’re really confident about being able to get this done,” Mr. Harrison said.“Everybody is pushing in the same direction. We’re really confident about being able to get this done,” Mr. Harrison said.