It's a bit of both. To be fair to Jenkins, Barclays got caught in several heavy showers last year. Regulators became tougher on capital and leverage, making the investment banking game more expensive to play, and the volume of trading in the fabled fixed-income, currencies and commodities (FICC) business dried up. Barclays' forecasters should have been more alert to the regulatory dangers but everybody was caught out by fickle FICC.
Even allowing for those factors, however, Jenkins was too timid in February last year, when he last overhauled the investment bank. The good news (sort of) for shareholders is that the results were so poor that Jenkins had to respond. Returns on equity from investment banking collapsed to 8.2% in 2013, and were about half that level in the final quarter. When you are shooting for 12%-plus across your businesses, that's a miserable failure.
Jenkins' solution is to ditch the losing lines of business and back the winners. Thus large chunks of the investment bank, such as interest rates, foreign exchange and commodities, will be hit hard by the job losses, but other areas, such as the equity and credit operations, will escape.
Barclays, in effect, has given up its ambition to be a full-range investment bank in the style of Goldman Sachs and JP Morgan. Bob Diamond's all-singing, all-dancing vision for his beloved Barcap is dead. Jenkins notes that as few as 1,000 clients were responsible for 75% of its activity in investment banking last year. Barclays will choose to fight only where it thinks it can make decent money.
Nice theory; will it work? It's not hard to spy risks. Can you prosper as a two-thirds investment bank? Do your big clients still take you seriously? Will supposed superstar employees pine to play for a Premier League bank? Will FICC return with a roar when interest rates go up?
Never mind all that. The point about Barclays' investment bank, as constructed by Diamond, is that investors rarely trusted it even in the good years (and they trusted it even less after 2008). Its value in Barclays' share price is approximately zero. Shareholders hate the volatility in earnings and fear more accidents.
If Jenkins thinks a radically slimmed-down version has a chance of achieving stable earnings, he's entitled to try. It is a much better strategy than merely stripping Diamond's creation of its tax-avoidance department, which was the centrepiece of last year's timid approach. Capping the investment bank at 30% of Barclays assets sounds like an excellent idea. At 50%, it was far too dominant.
There are, to repeat, no guarantees of success. And, if this doesn't work, the only other credible strategy would be a demerger. But there was a reason why Barclays' shares rose 8%: Jenkins may finally have a coherent plan. About time, too.
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