Barclays will cut 3,700 jobs to reduce annual costs by 1.7 billion pounds ($2.6 billion) as Chief Executive Officer Antony Jenkins revamps the lender following its fine for interest-rate manipulation.
About 1,800 positions will go this year at the firm's investment bank and 1,900 in its loss-making European consumer and business banking unit, Jenkins said in a statement today. The lender today posted a net loss of 1.04 billion pounds for 2012, its first in two decades, as it set aside an additional 1 billion pounds in the fourth quarter for compensating clients wrongly sold interest-rate swaps and loan-repayment insurance. Analysts had estimated the loss would be 307 million pounds, according to the median estimate of nine surveyed by Bloomberg,
Jenkins, who took charge in August, is seeking to return Britain's second-biggest lender by assets to profit and avoid repeating regulatory missteps such as the 290 million-pound fine for Libor-rigging that led his predecessor, Robert Diamond, to resign. He plans to cut costs to about 55 percent of income from 64 percent in 2012 and shrink assets as regulators and politicians press lenders to boost capital and curb risk-taking.
"The main focus is on the strategic review, so it would be normal for management to push through a touch more in charges through the full-year results now," said Otto Dichtl, managing director at Knight Capital Europe Ltd., in an interview with Bloomberg Television's Mark Barton today. "I'm a little surprised they didn't announce more significant changes at the investment bank along the lines of what others have done."
The shares climbed 5.3 percent to 317.4 pence as of 12:10 p.m. in London trading, their steepest intraday increase since Jan. 2. The stock has climbed more than 20 percent this year, making it the best-performing of Britain's five biggest lenders. Lloyds Banking Group Plc has climbed 14 percent and HSBC Holdings Plc about 12 percent.
While Jenkins said he will eliminate more than the 2,000 jobs analysts had estimated, he's resisted pressure from politicians for tougher cuts at the investment-banking unit.
UBS AG, Switzerland's largest bank, is cutting 10,000 jobs over the next three years and exiting most debt-trading to target money management. Royal Bank of Scotland Group Plc, Britain's biggest publicly owned lender, said last year it would eliminate more than 3,500 jobs at its securities unit.
Barclays has reviewed 75 of its units to weed out those that posed a pose a reputational risk or don't make profits. The firm will shut about four that consume about 90 billion pounds of assets and may shut a further 17 that generate about 2 billion pounds of income, Jenkins told reporters at a briefing in London's Westminster district today.
The bank will lose about 500 million pounds of revenue from the divisions being shut, among them its soft commodities unit and the structured capital markets division, which advises customers on tax planning and has been criticized by politicians as encouraging tax avoidance.
"The first thing politicians will ask is the activity shutting down or the unit shutting down?" Pat McFadden, a Labour Party lawmaker and member of the Treasury select committee, said in an interview with Bloomberg Television's Guy Johnson today. "It's easy to shut down a unit, shift some people elsewhere and carry on with the behavior. Barclays has a lot to prove with these things."
About 1,600 positions have already been cut at the investment bank, Finance Director Chris Lucas told reporters on a conference call today. The firm employs about 24,000 people at its investment-banking unit, and about 140,000 worldwide.
The cuts are designed to reduce annual costs to 16.8 billion pounds by 2015 and reduce risk-weighted assets under the Basel III rules to 440 billion pounds from about 468 billion pounds. Barclays will target a return on equity that exceeds its 11.5 percent cost of equity.