LONDON -- Bloodied but unbowed, Barclays Bank PLC is trying to find new footing in the United States.
After losing nearly $630 million in the United States last year, the London-based bank is selling off more than $6 billion in low-margin and problem loans, and has turned management of its U.S. operations over to Barclays de Zoete Wedd, its investment banking arm.
The shift in policy brings to a close a long and unhappy chapter for Barclays. Analysts, bankers, and former Barclays executives say the British bank's foray into the United States offers a case study in how not to move into a foreign market.
"It's been an unmitigated disaster and a source of significant losses," remarks Phil Pickard, a sales specialist at James Capel in London.
"Like many other foreign banks, they came here with the wrong assumptions," said one former Barclays employee who declined to be identified. "They assumed there was no risk in lending to the Fortune 500, that they knew more about banking than any American, and they could get the same spread on their money here as in their home country."
Barclays first opened a U.S. agency in 1890. But the real saga began in the 1970s when the bank started to ambitiously expand its U.S. retail and corporate market operations under the assumption that bigger was better.
Barclays was not the only foreign bank to fall prey to this faulty strategy. Many others, including some of the world's biggest banks, were similarly expanding in the United States, attracted by possibilities for business in the world's largest financial market.
But sources say Barclays had no real long-term strategy and failed to adequately monitor the credits it was making. Meanwhile, they add, management was handed over to a clubby group of executives from London and other far-flung outposts who were promoted because of their seniority but were completely unfamiliar with the United States.
"They had this huge lending limit and thought they could throw all kinds of money at people and somehow it would come back to them," says the same former Barclays banker.
For example, according to estimates by Salomon Brothers that have been confirmed by the bank, Barclays extended between $3 billion and $4 billion in real estate lending in the U.S. in the late '80s, much of which turned into a massive headache.
And that didn't include hundreds of millions more in bad real estate loans through the bank's U.S. retail unit, Barclays Bank of New York, and tens of millions in speculative real estate loans in places like the U.S. Virgin Islands.
Sources familiar with the bank add that Barclays also poured millions into building infrastructure without much thought to recovering its investment. "They went off on a capital spending binge, hiring every conceivable consultant and built overhead like it didn't matter," said the former Barclays banker.
That, he recalls, included the high-rise headquarters Barclays built in the '80s at 75 Wall Street just before New York City's real estate market hit the skids.
"I asked a senior executive how he planned to finance the building, but he didn't seem to think it was a problem," the same banker says. "He just pointed to the phone and said, 'That's how I'm going to do it. I'm going to pick that thing up and call London.'"
As late as June 1987, the former chairman of Barclays worldwide, John Quinton, was talking of making further "substantial" acquisitions and increasing Barclays U.S. assets by billions of dollars.
However, barely a year later, Barclays executives say, the bank decided to develop capital markets and wholesale business instead, and get out of retail and low-margin corporate lending.
As pan of the plan, they add, the bank subsequently sold off Barclays Bank of California in 1988, Barclays Bank of New York in 1993, and the Charlotte, N.C.-based commercial finance unit, BarclaysCommercial Corp. to CIT Group this year.
"We decided at some stage ... that we wanted out of retail because with retail you either invested a lot more and bought a lot more retail or you decided retail wasn't for you," said Andrew Buxton, the bank's worldwide chairman. "We decided retail wasn't for us, so we steadily sold."
Adds Richard Webb, head of U.S. operations: "Where you have a reasonable share of the market, you have a reasonable chance of making a steady, good return."
Barclays' decision to pull out of retail contrasts sharply with that of its biggest competitor at home, National Westminster PLC, which pumped in hundreds of millions of dollars to salvage and expand its money-losing U.S. retail operations.
National Westminster has since returned to profitability and is still expanding market share, mainly in New Jersey, by making more acquisitions. Similarly, Royal Bank of Scotland, which acquired Rhode Island-based Citizens Financial in 1988, has been expanding ever since.
Still, the question arises why, if Barclays decided it wanted to get out of retail in the United States as early as 1988, did it wait so long and allow such large losses to occur?
Analysts believe that one reason Barclays stalled was that it simply wasn't in a position to sell off its U.S. retail units faster. "Barclays Bank of New York was unmarketable in 1990 and 1991," says John Leonard, a London-based banking analyst with Salomon Brothers. "And the sooner you get rid of something, the more it costs."
However, executives familiar with Barclays don't buy the bank's explanation. They doubt any decision to retrench from retail and corporate banking was made until the U.S. problems became too overwhelming to be ignored.
"I don't believe they made a definitive decision that early," said one source. "The thing I always found amazing about them Was their ability to rationalize any situation."
He and others also point out that even as the bank was supposed to be pulling out of unprofitable U.S. retail and corporate operations, it was continuing to make hundreds of millions of dollars in commercial real estate and risky, low-margin corporate loans. These credits were extended even as the U.S. economy lurched into recession at the end of the '80s.
Now, however, Barclays executives expect soon to finalize the sale of troubled U.S. assets. They deny the bank has any intention of further significant reductions in U.S. operations.
With some $30.6 billion in total U.S. assets, including assets booked offshore and through subsidiaries, and 3,400 U.S. employees, Barclays executives insist the bank remains a major player in the United States.
As the world's 22d-biggest bank, with $244 billion in total assets, Barclays remains a force to be reckoned with in everything from project finance to foreign exchange trading, mergers and acquisitions, swaps, asset-based lending, debt and equity underwriting, and corporate lending.
Like big U.S. banks, Barclays may also be poised for a comeback after it comes to grips with its problems. "The potential for a recovery is there," says Mr. Pickard.
In an even stronger confirmation of confidence in the bank, Standard & Poor's Ratings Group in June reaffirmed Barclays' AA rating for its senior and long-term debt.
"The affirmation reflects the expectation that earnings will rebound strongly in line with the continued recovery of the U.K. economy and previous actions taken by management," S&P noted in its evaluation.
Long run by descendants of the Quaker families that founded the bank 304 years ago, Barclays took an unprecedented step last year by dividing up the post of chairman and chief executive and naming Martin Taylor to the No. 2 position.
A 42-year-old former journalist, Mr. Taylor previously served as chairman and chief executive of Courtaulds Textiles. He arrived at Barclays in August 1993 with virtually no background in banking.
Since then, he has split the bank down the middle, separating British retail banking from international wholesale operations, revamping reporting lines and merging corporate/wholesale banking with investment banking.
"We want a strategy that's more shaped by the customer than by product," Mr. Taylor said in a recent interview. "The trend [in the market] is toward disintermediation, and the stress [at Barclays] is on capital markets products," he added. "That's not just U.S. policy, it's international policy."
Adds Mr. Buxton: "I think the attitude that credit and the expansion of the balance sheet by expansion of credit is the be all and end all is definitely passe."
So far, analysts give Mr. Taylor a cautious thumbs-up. "He's got an excellent reputation from Courtaulds, and people are hoping he'll be the new guru in banking," remarks Mr. Pickard.
"While we believe that Mr. Taylor is still very much in the process of asking questions and getting to know the business better, the direction of his thinking suggests a more focused, leaner organization, most likely smaller than the current one," says Salomon Brothers' Mr. Leonard.
Analysts add that Barclays current strategy makes a lot more sense than its earlier one and that its investment banking unit is well positioned to develop capital-markets-related business in the United States and elsewhere.
"My sense is that they are on a much better managed path," says Mr. Leonard.
Results for the first half of this year confirm analysts' expectations, Worldwide, Barclays posted nearly $1.6 billion in pretax earnings for the six months ended June 30, and $127.5 million in pretax earnings in the United States.
"Our U.S. strategy is in place," said a spokeswoman for the bank in New York, pointing to a growing number of successful financings arranged by Barclays de Zoete Wedd, including a $250 million facility for Claircom Communications Group LP and a $325 million financing for the merger of General Cellular and Pacific Northwest Cellular to form Western Wireless.
Still, analysts predict that Barclays is unlikely to soon embark on anything as ambitious again in the United States as it did in the '80s. "I don't think they'll be looking to move back into the U.S. in any big way," says Gerry Rawcliffe, an analyst with the London-based rating agency IBCA Ltd.
"With the scare they've had over the last few years, I think there's a lot more focus on doing what makes sense rather than trying to be all things to all people," says Mr. Leonard.