Barclays Considers Major Overhaul In Investment Banking Client Strategy
Barclays plans to streamline its investment banking, potentially cutting ties with over 2,500 clients to boost profits.
Barclays is considering a significant overhaul of its investment banking division, a move aimed at enhancing profitability and reducing expenses by approximately £1 billion ($1.25 billion). Discussions, known internally as Project Minerva, have been underway to determine the best course of action for the bank.
Chief Executive CS Venkatakrishnan faces mounting pressure to decrease the bank's dependence on investment banking and improve returns to shareholders. With Barclays' shares at a low since the pandemic and a relatively low valuation compared to global peers, the urgency for change is palpable.
Deliberations And Decisions: Balancing Risk And Reward
Among the more radical proposals was a plan to raise capital for purchasing a wealth or asset management firm. Another option involved a substantial reduction of up to 25% in trading assets within the investment bank, reallocating resources to consumer and credit card operations.
However, facing resistance from trading co-heads Adeel Khan and Stephen Dainton, Venkatakrishnan is inclined towards a more moderate approach. This likely involves severing ties with the least profitable investment banking clients, potentially affecting over 2,500 of the total 10,000 clients, although this figure is subject to final decisions.
Optimizing Client Relations: A New Direction
Barclays uses an internal client management system, "Hector", to categorize clients into tiers based on profitability, with the top 500 clients categorized as diamond, platinum, and gold, contributing most profits. The remaining clients, labeled as silver, are less transactionally active and less profitable.
The investment bank, accounting for two-thirds of the group's risk-weighted assets (RWAs), is central to this review. Reducing or reallocating RWAs could significantly enhance shareholder returns through dividends or buybacks. An aggressive client reduction strategy could free up to £20 billion of RWAs, impacting less than 10% of the division's revenues.
Navigating Global Capital Rules And Internal Challenges
The division is tasked with achieving a return on tangible equity of 14 to 15%, up from the current 11.5%. This would necessitate a significant reduction in operating costs. The challenge intensifies with the upcoming implementation of Basel 3.1 global capital rules.
Internal debates have surfaced regarding the scope of the restructuring. While some less profitable operations, such as the US municipal bond trading, were considered for exit, they were ultimately deemed to have minimal impact on RWAs.
Cost Reduction And Job Cuts: A Wider Impact
Barclays also plans broader cost-cutting measures, including a potential reduction of 2,000 jobs across the group, targeting areas like BX, its central back office and technology hub, and the comparatively costly UK consumer lending division. The corporate business, focusing on loans and services for large companies, might also see cost optimizations.
Furthermore, Barclays is exploring synthetic risk transfers to manage its capital burden more effectively, a strategy increasingly favored by European banks to meet capital requirements.
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