Barclays announced the details of a new business strategy today, with plans to slash 3,700 jobs in its Corporate & Investment Banking and Europe Retail & Business Banking divisions. After a year of turmoil, with three headline scandals and a shake-up of the bank’s top brass, CEO Antony Jenkins is attempting to lead an increased focus on ethics and an exit from businesses it no longer sees as profitable.
Markets appeared pleased with the strategic review and with what analysts saw as solid earnings for the fourth quarter of 2012; BARC shares rallied more than 8% to $326, their highest value in nearly 2 years. Nonetheless, there are reasons to be cautious about Barlcays’ makeover.
Barclays is focusing on expanding in the US, the UK, and Africa. Jenkins announced that Barclays intends to cut back on the more unprofitable elements of its global businesses, namely Europe and Asia. The sovereign debt crisis has already taken a toll on the firm’s margins in Europe—it’s little surprise, given mounting costs from bad mortgages and slowing business overall. The UK economy isn’t doing so well either, but a strong job market has curtailed some of the effects of a contracting economy.
There are more challenges in the US, however. New regulations that could come into play as Dodd-Frank regulations go into effect have the potential to put a damper on the firm’s American business. Those regulations could require the company to hold more capital in its States-based coffers, increasing the cost of doing business. That was something analysts quizzed Barclays executives about in the conference call today and got few answers, except that “a lot of work is being done in that area.”
Wealth management is everyone else’s promised land as well. Barclays is just one of a bunch of banks angling to expand their presence in the wealth management business. In the fourth quarter, not only did the bank book £315 million in profits related to wealth management—up 52%—it saw new income even as it cut costs by 2%. Talk about a good deal.
But Barclays isn’t alone in seeing a future in expanding its wealth management activities. They’re less risky, and will cause fewer headaches, executives reason. Most of the major investment banks on both sides of the Atlantic have expressed greater interest in working with wealthy individuals and organizations to build their assets. But their expansions into this area could crowd a market that was once far emptier. Profits today may look great, but this may not last forever.