MarketLine Blog

Barclays: Can global restructuring boost bank’s profits?

In February 2013, Barclays CEO Antony Jenkins announced a new group strategy with the central aims of simplifying the bank’s operations and boosting profitability. The plan, termed by Jenkins as a ‘bold simplification of Barclays’, involves the establishment of a ‘non-core’ operation consisting of assets and businesses that Barclays plans to run down or exit, a noticeable reduction in headcount, a scaling back of investment banking operations, increased automation of banking processes, and changes to the bank’s UK branch network.

As explored in the MarketLine case study ‘Barclays PLC: Reshaping a global bank‘, the decision to embark on an ambitious reshaping of the business is primarily a financial one, with CEO Antony Jenkins stating that the overriding performance objective is to deliver return on equity above the cost of equity on a sustainable basis. With some divisions and businesses performing well and others poorly, the bank’s management has been forced to reassess its positions. Jenkins also believes that the bank has swollen to too great a size and that it is too complicated, with interests in areas in which it does not have the necessary scale and/or expertise and the move to a simpler structure is an attempt to combat that issue.

However, while Barclays’ decisions to cut costs, establish a non-core business, and desire to streamline by exiting non-profitable operations are undoubtedly borne out of financial necessity, they are far from groundbreaking. Rival banks, such as RBS and Lloyds Banking Group (Lloyds) have taken similar steps as they also look to streamline, and some of the decisions are being driven by changing trends within the banking industry, particularly where increased automation is concerned. For example, the rise of digital banking has forced all major UK banks to invest significantly in secure, user-friendly online and mobile banking platforms and the associated fall in branch traffic has left the door open for possible branch closures.

While Barclays has a clear plan and a justifiable rationale for embarking on Jenkins’ ‘bold simplification’ of the business, its management and investors must be patient and give the plan time to bear fruit. As can be seen from the similar strategies adopted by Lloyds and RBS, tangible results are a long way in the future, but if patience is exercised, Barclays may just emerge from its reshaping program a simpler, stronger bank.

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