UK retreat from investment banking gathers pace
Last updated: March 3, 2015 6:09 pm
Martin Arnold, Banking Editor
Ross McEwan and Antony Jenkins ©Bloomberg
RBS CEO Ross McEwan and Barclays' Antony Jenkins
Britain’s retreat from investment banking is set to accelerate as Royal Bank of Scotland aims to slash as many as 14,000 jobs in the sector and Barclays’ chief executive says he has limited patience with the business.
The moves underline how two of the UK’s once mighty global investment banks are facing questions about their future, leaving the country reliant on foreign groups to provide access to capital markets.
“There will come a time when we need liquidity in this country and we won’t have a British broker-dealer so we will have to rely on JPMorgan and that is a problem,” said Chirantan Barua, banking analyst at Bernstein.
RBS refused to say how many jobs would be cut out of the 18,000 people who work for its investment bank as part of a drastic restructuring plan — dubbed Project Brown — it announced last week to shrink the business back to its UK roots.
But two people familiar with the matter said
RBS had set a target of cutting as many as four out of five jobs in the unit by 2019, while overhauling the back-office systems to automate them.
A large proportion of the jobs RBS will cut are in the US and Asia. The bank declined to comment.
On Tuesday, Antony Jenkins said his patience would be limited in waiting for a recovery of Barclays investment bank, which overshadowed strong performances from other parts of the group and dragged it to an overall net loss last year.
Pre-tax profits at Barclays investment bank fell almost a third and its return on equity was 2.7 per cent — well below the bank’s target of above 12 per cent.
Mr Jenkins said: “I am not a very patient person . . . We won’t hesitate to optimise the capital allocated to the investment bank, its cost base and its revenues to achieve those [target] returns.”
Investment banking was once a profits engine for Barclays. But it announced plans to shrink the unit and slash costs last May in response to tougher regulatory requirements and a downturn in the business of trading bonds, currencies and commodities.
There have long been rumours that Barclays could spin off or sell its investment bank, which analysts said was better positioned than that of RBS, especially as regulators are forcing it to split its UK and US operations into separately funded entities.
Joseph Dickerson, analyst at Jefferies, said that once John McFarlane took over as Barclays chairman in April, the pressure on the investment bank was expected to increase. “I think they will give it two years from the last strategic review, so until May 2016,” he said.
Bernstein’s Mr Barua said: “They keep threatening to do different things with it, but you can’t list it and you can’t sell it. They are really stuck.”
RBS is reducing risk-weighted assets in its investment bank by two-thirds and quitting 25 of the 38 countries in which it operates, all at a cost of £2.5bn-£3.5bn.
Barclays set aside an extra £750m in the fourth quarter to cover the cost of investigations into suspected manipulation of foreign exchange markets, taking total provisions for the issue to £1.25bn.
The bank also disclosed that it had been providing information to the US Department of Justice for its investigation into potential price fixing in precious metals markets that has ensnared at least 10 banks.
Excluding exceptional costs, pre-tax profits at the bank rose 12 per cent to £5.5bn, beating analyst expectations. But including the “one-off” items, Barclays made a net loss of £174m last year, against a profit of £540m the previous year.
Mr Jenkins collected his first annual bonus since becoming chief executive of the bank in 2012 with a £1.1m award, helping to treble his total pay to £5.5m. The overall bonus pool at Barclays shrank more than a fifth.
Shares in Barclays were 3.2 per cent lower at 254.3p.
