(Closes shares in fifth paragraph.)
Feb. 12 (Bloomberg) -- Barclays Plc 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 8.6 percent to 327.35 pence in London trading, the highest since Feb. 18, 2011. The stock has risen 25 percent this year, making it the best-performing of Britain’s five biggest lenders. Lloyds Banking Group Plc has advanced 16 percent and HSBC Holdings Plc almost 13 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 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.
Barclays will scale back the investment bank’s Asian and European equities business, reversing an expansion that followed its 2008 purchase of Lehman Brothers Holdings Inc.’s U.S. unit.
Investment banking will remain a “sizable part” of the group, Jenkins, 51, told Bloomberg Television’s Francine Lacqua in an interview. The consumer bank, credit cards, wealth- management units will grow faster than the investment bank, leading to a “gradual re-balancing of the group,” he said.
Adjusted pretax profit at the investment bank climbed to 858 million pounds in the fourth quarter, from 267 million pounds in the year-earlier period, accounting for 78 percent of profit at Barclays. The fixed-income, commodities and currencies business, the unit’s largest by sales, posted fourth-quarter revenue of 1.46 billion pounds, up 50 percent from 971 million pounds a year earlier and beating the 1.31 billion-pound estimate of Chirantan Barua, an analyst at Bernstein Research.
The average bonus awarded to employees fell 13 percent to 13,300 pounds, while awards at the investment bank declined 17 percent from the previous year to 54,100 pounds, Barclays said. In all, the lender will pay about 1.85 billion pounds in bonuses, compared with 733 million pounds in dividends.
“We’ve said we want to strike the right balance between various stakeholders,” said Lucas, who said in February he would step down. “We are making progress.”
The firm raised its fourth-quarter dividend to 3.5 pence a share from 3 pence in the year-earlier period. That increase may be a sign regulators are becoming less concerned about potential capital shortfalls at British bank, Barua said.
“You don’t allow a broker-dealer getting into restructuring to pay out capital if you think it needs tons more,” he said by e-mail.
The net loss, the first since 1992, compares with a profit of 3 billion pounds in 2011. It also includes a 400 million- pound provision for mis-sold interest-rate swaps.
“We have a relatively good certainty, given the small number of customers affected by this, that provisions will be adequate,” Jenkins said.
Adjusted pretax profit, which excludes gains on the value of the bank’s own debt, provisions and impairments, climbed 26 percent to 7.05 billion pounds, from 5.59 billion pounds for 2011. That missed the 7.14 billion-pound median estimate of 18 analysts surveyed by Bloomberg.
The bank expects “low single-digit” revenue growth from its stronger businesses such as fixed-income, currencies and commodities operation, credit card division and its consumer and business banks in Britain and Africa, Jenkins said.
Pretax profit at the U.K. retail and consumer banking unit fell to 292 million pounds in 2012 from 1.02 billion pounds in 2011, partly on the costs of compensating clients who were sold insurance on loan repayments they didn’t require or ask for. The lender set aside an additional 600 million pounds for payment- protection insurance in the fourth quarter, bringing the cumulative total to 2.6 billion pounds.
Europe retail and business banking posted a pretax loss of 239 million pounds, largely unchanged from its 234 million pounds loss for 2011. The bank said it will shut about 30 percent of branches in its European consumer bank as it refocuses it on the called so-called mass-affluent market.
--With assistance from Jon Menon and Keith Campbell in London. Editor: Edward Evans, Simone Meier.