Barclays faces investment bank litmus test in Africa

Bloomberg

Barclays Plc Chief Executive Officer Jes Staley, poised to announce the fate of the lender’s African business, must convince investors he can improve the investment bank’s profits just as slumping trading revenue batters the
industry.
Staley is leaning toward maintaining the securities unit without pursuing a major restructuring or spinning off the business, according to people familiar with the matter, who asked not to be identified before his presentation on Tuesday. He probably will lay out plans to exit the bank’s African business and its 50 billion pounds ($70 billion) of assets, according to a person briefed on the
decision.
The bank said in a statement on Sunday that its board is still evaluating options for the African unit.
“You’re looking at a dreadful climate, so whatever Staley lays out, there will be questions,” said Chris Wheeler, a London-based analyst at Atlantic Equities. “If Jes is looking for a bounce off his strategy, it has to be very controllable, and the only options are cutting costs and reducing capital allocated to the investment bank.”
Barclays has four core divisions: two units in Barclaycard and personal and corporate banking that have steady returns of more than 10 percent; the African business that’s hit by slowing economic growth and a falling South African rand; and the investment bank, which has the lowest returns of the four.

Cost Cuts
Staley has already taken an ax to the latter unit, announcing 1,200 additional job cuts, exiting most countries in Asia, imposing a hiring freeze and cutting the bonus pool to restrain costs. The moves have thus far not arrested a two-year slump in shares that has left the bank trading 50 percent less than its book value.
With that valuation at its lowest in more than three years, the stakes are high for Staley’s strategic update alongside full-year
results.
Chairman John McFarlane fired former retail banker Antony Jenkins as CEO in July, blaming him for a slow place of restructuring, and installed Staley, who ran the world’s largest investment bank at JPMorgan Chase & Co.

Trading Slump
Last year was the worst for fixed-income trading since 2008, according to research firm Coalition Development Ltd. JPMorgan said last week that trading revenue was down 20 percent so far in 2016 and that investment banking fees will probably slide about 25 percent this quarter amid the market turmoil.
“The ongoing market weakness is leading to faster restructuring at Credit Suisse and Deutsche Bank because of the stress they are coming under,” said Paul Dilworth, an investment manager at Kames Capital Plc, an Edinburgh-based fixed-income firm that oversees about 55 billion pounds including Barclays bonds. “It’s validated McFarlane’s decision to get rid of Jenkins and bring in Staley when he did, because what they really need is someone to be more knowledgeable about the IB and understand how to redistribute capital and what businesses they should close down.”