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Wednesday, 23 April 2014

Jenkins appointment at Barclays shows lack of imagination

I don’t know Antony Jenkins but I don’t like him. Unfair? Almost certainly. I don’t mean this in a personal sense, but promoting Barclays’ former retail and business banking chief to the corner office in place of Bob Diamond is clearly a function of faute de mieux. I had been similarly unimpressed by the dreary appointment of David Walker as chairman a few weeks ago. Is this really the best that Barclays can do?

IFR Editor-at-large Keith Mullin

IFR Editor-at-large Keith Mullin

It’s certainly not the dream partnership shareholders and employees probably had a right to expect.

The CEO job should clearly have gone to an outsider. I imagine some of those in the frame might have thought twice about taking on a job that has an element of a poisoned chalice about it, but I also sense that outgoing chairman Marcus Agius was in a hurry to exit the revolving door for the final time and didn’t want the appointment to drag on any longer.

And in some fairness, keeping the CEO position open for too much longer wouldn’t have been helpful either.

The thing is: Jenkins has been on the bank’s group ExCom since 2009 so isn’t untainted by the reputational issues dogging the bank at the moment. Indeed, the mis-selling scandals originated firmly within the businesses he ran until yesterday.

The media chatter around the appointment has focused on what he will do with the investment bank and how he’ll deal with the raft of regulatory and criminal investigations into Libor rigging, PPI and interest-rate swap mis-selling, the Qatari rescue deal etc. On the latter issues, it’s anyone’s guess how it will all turn out. The best Jenkins can do at this point is to try and figure out how much it’s all going to cost in financial terms and start accruing for it now. Fixing the reputational issues will have to come later.

Lack of experience

On the former, it’s clear that Jenkins has no experience of running wholesale/institutional businesses. He will no doubt have already been receiving a lot of soft political and regulatory pressure to cut back the amount of capital allocated to the corporate and investment bank. But the serious browbeating starts now. He should tread carefully.

The “casino bank” that has been at the sharp end of a campaign of official vilification for years made 51% of group pre-tax profits in the first half of the year (if you exclude head office costs). If you add in the corporate bank’s contribution, the CIB division made 59% of the numbers. That compares with just 38% from Jenkins’ retail and business banking business. That is a significant difference. And it also comes at a time when investment banking revenues are in a funk as trading businesses suffer from lack of volume and velocity and M&A and capital markets suffer reduced deal flow.

Barclays ranks sixth in global M&A year-to-date; fifth in US and European M&A as well as US ECM and third in global debt underwriting. That’s a pretty formidable feat for a group that has only really been a full-service investment banking provider for a little over three years. Not only that: the group has spent an inordinate amount of time and money building up the investment bank.

A lot of the heavy lifting around reining in excessive compensation and unbridled risk-taking has already been done. A lot of the hiring of playmakers has also been done. Once we see a turn in the economic and deal-making cycle, revenues and ROE at the investment bank should arguably outperform.

On a cost-of-production basis, the investment bank’s cost-income ratio of 61% was the same as UK retail and business banking but well below that of wealth and investment management (84%) and the loss-making Europe retail and business banking division (88%). The investment bank is hardly the outlier that everyone seems to think it is.

There’s continuing talk of Barclays potentially spinning off its investment bank via a separate listing, or selling it altogether. I don’t buy either as a solution. I imagine the former Lehman Brothers folks in the US must be mystified by developments of the past few months and be scratching their heads in bewilderment. I wrote in July after Diamond and Jerry del Missier had walked that Barclays should keep the faith in investment banking. I repeat my exhortation today; this time directed at Antony Jenkins.

See Breakingviews: Barclays new chief video.


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