Barclays will announce on Thursday that it is cutting up to 8,000 investment banking roles – almost a third of the division's workforce – as it retreats from one of the most controversial parts of its business.
Antony Jenkins, the embattled Barclays chief executive, is to outline his plan to overhaul the investment bank on Thursday after facing fierce criticism for his decision to increase bonuses by 10% last year, when profits fell sharply.
In an announcement to the City, Jenkins is expected to explain how he intends to tackle the most troublesome parts of the investment bank – the traditional powerhouse of Barclays – to prove to investors that he can rein in costs and start to bolster the profitability of the organisation.
He has been under pressure since insisting that bonuses needed to rise last year to keep crucial staff and avoid a "death spiral" that might otherwise have occurred if they were allowed to leave.
But, in his latest strategy update – his third since taking the helm after Bob Diamond left in the wake of the Libor-rigging scandal – Jenkins is expected to signal the potential for fresh cuts in the investment banking arm, which employs 24,000 around the world, primarily in the City and Wall Street.
The jobs are not expected to go all at once, but spread over three years. Some are likely to have gone already or be in train as the bank has begun to scale back its vast commodities trading operation and end trading in so-called physical commodities such as agricultural produce.
The bank has already earmarked 12,000 job cuts for this year, with 7,000 of those in the UK. It is unclear how many of the latest round of 8,000 are on top of those earlier numbers.
Barclays has been targeting senior employees. Around 450 directors and managing directors have been made redundant in the first quarter, finance director Tushar Morzaria said on Tuesday, when the bank admitted that revenues in its investment bank had almost halved in the first three months of the year. The bank signalled that further senior roles would be axed in the run-up to June.
The fall in revenues perplexed City analysts after the decision to raise bonuses last year.
Some of the unwanted parts of the investment bank are expected to be placed in a non-core division – a so-called bad bank – with loss-making operations in continental Europe earmarked for sale.
The investment bank expanded rapidly after 2008, when Barclays bought the Wall Street operations of Lehman Brothers, although in recent days there has been speculation about large-scale resignations following the departure of Skip McGee, head of its US investment banking operations. He was the most senior banker remaining from the Lehman takeover and received £8.8m in shares in March.
Barclays' downturn in profits in the first quarter was largely caused by its commodities and bond trading operations, where regulators are reducing profitability by demanding that banks hold more capital and where volatility in markets means there is less appetite for trading.
As he put the finishing touches to his strategy review last month, Jenkins had already made clear that he intends to retain the investment banking operations of the bank.
He told shareholders at last month's annual meeting – where investors protested about last year's pay deals: "The future for Barclays will be as a strong, focused, international bank. And the investment bank will be an important part of that mix. A strong investment bank in Barclays is good for the business, good for shareholders, and good for Britain."
But he said that the "right shape and size" of the investment bank was a crucial consideration for his strategic review.
His review "will address issues underlying the performance challenges we have recently experienced, including positioning the investment bank for the new operating and regulatory environment," he said.
Other banks have been taking hits in their investment banking arms. On Wednesday HSBC was the latest, citing "challenging market conditions" as its profits fell 13% in the first quarter of the year. In the investment bank, profits fell by a fifth and are likely to remain subdued in the second quarter.
Jenkins has already let it be known that he expects the 140,000 global workforce of Barclays – which includes high street banking, investment banking and fund management – to fall to 100,000 over the years as new technology replaces jobs. This is also likely to have an impact on the number of branches. Of the 12,000 job cuts already announced, the 7,000 posts affected in the UK are not just in the investment bank but also in high street branches, where iPads are replacing employees.
Jenkins's bonus policies recently faced criticism from the former boss of investment bank JP Cazenove, Robert Pickering, who said investments would perpetuate the myth of the "death spiral".
"It is absolutely ingrained in the culture of these organisations and Mr Jenkins' antagonists at [the investment bank] in the US, having been schooled in the rough, tough world of Lehman Brothers, will be master exponents of the art form," Pickering wrote in the Financial Times.
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