Updated Friday, August 28, 2015 as of 10:43 AM ET

Barclays to Credit Suisse Battling Banker Exits, U.S. Woes

(Bloomberg) -- Barclays Plc, Credit Suisse Group AG and UBS AG will face questions this week about key banker departures, legal challenges and their efforts to boost profitability.

Barclays last week lost three top bankers in the U.S. and Asia before a May 8 strategy announcement that will probably include shrinking the London-based firm’s investment bank. Credit Suisse, which holds a shareholder meeting May 9, is facing potential U.S. criminal charges over its role in helping Americans avoid paying taxes, people familiar with the matter said last week. UBS AG, meeting investors tomorrow, is falling short of profit goals, according to analysts’ estimates.

Europe’s top banks are facing heightened scrutiny from shareholders, regulators and legal authorities after they lost market share in some investment banking businesses to U.S. competitors. Meanwhile key areas of Wall Street revenue are under pressure: JPMorgan Chase & Co., the biggest U.S. bank, said last week that it expects trading revenue to drop about 20 percent this quarter from a year ago.

“When banks started thinking strategically about where they wanted to be, they were expecting fixed-income, currencies and commodities to be stronger than today, and that the goal posts on capital would be clearer than they are,” said Eli Haroush, a fund manager at APG Asset Management in Amsterdam, which oversees 352 billion euros ($488 billion). “At the moment banks have to run very fast in order to not move at all or fall back.”


Barclays will now have to compete without some of the key dealmakers it acquired with its purchase of Lehman Brothers Holdings Inc.’s North American operations. Hugh “Skip” McGee, the Lehman Brothers alumnus who received a stock bonus more than twice the size of Barclays Chief Executive Officer Antony Jenkins, left last week. That was followed by the departures of Ros Stephenson to Zurich-based UBS and Robert Morrice, the Asia- Pacific chairman and CEO, who is retiring after 17 years.

The Lehman Brothers acquisition helped Barclays in the U.S. The bank ranks higher among underwriters of U.S. stock sales than it does in Europe, according to data compiled by Bloomberg. The bank is also more active on mergers involving U.S. companies than on European deals, the data show.

“If people are departing, and you don’t have continuity in your relationships, that’s a disadvantage,” said Charles Peabody, an analyst at Portales Partners LLC in New York.


Another Lehman Brothers alumnus -- mergers and acquisitions chief Paul Parker -- is planning to leaveBarclays in a few weeks and doesn’t have any immediate plans for what he’ll do next, according to a person familiar with Parker’s thinking.

Investors are demanding that Jenkins, 52, outline a strategy for the investment bank, the biggest source of income for the firm, after falling behind on targets and boosting pay.

Return on average equity at Barclays’s securities unit, a measure of profitability, fell to 8.2 percent last year from 13 percent in 2012, short of Jenkins’s target of at least 11 percent in 2015.

“On the cost side of investment banks, restructuring will require drastic measures -- on top of the further headcount reductions which are likely,” including reviewing the businesses to maintain to reduce risk-weighted assets, Philippe Morel, a London-based senior partner and managing director at The Boston Consulting Group, said by e-mail.


Barclays could eliminate 7,500 jobs at its investment bank, according to an April 22 report by Sanford C. Bernstein. The European fixed-income, currencies and commodities business may be the hardest hit, with about 5,000 job losses, analysts led by Chirantan Barua said in the note. Cuts of 6,500 to 7,500 equate to between 25 percent and 30 percent of the unit’s employees, the report estimated.

In the strategy review this week, Barclays will say it’s naming Corporate and Investment Bank Co-Head Eric Bommensath to oversee a so-called bad bank of unwanted assets and units, leaving Tom King in charge of the investment bank, a person familiar with the plan said last week. The bad bank will include the commodities business and other units previously assigned to the bank’s “exit quadrant,” including some of the firm’s rates trading, derivatives and other fixed-income assets, the person said.


The challenge for Barclays “is to continue the rebalancing of the group away from being a fixed-income dominated investment bank to being a more balanced investment bank,” UBS analysts led by John-Paul Crutchley said in a May 1 research note. Investors would favor “a restructuring that reduced the overall balance sheet and lowered capital intensity.”

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