Updated, 7:52 a.m. | LONDON – In a sharp retreat from Wall Street, Barclays plans to shrink its investment banking business by cutting more than a quarter of the operation’s work force.  Under plans outlined on Thursday, Barclays will be streamlined in four core areas: retail and corporate banking, primarily in Britain; the Barclaycard credit card business; banking in Africa; and investment banking. A number of weaker businesses – including the trading of physical commodities outside of precious metals and some branch networks outside of Britain – will be placed in an internal “bad bank” where they will be sold or run off.  “This is a bold simplification of Barclays,” the bank’s chief executive, Antony P. Jenkins, said.  Barclays will also accelerate its cost-cutting effort. The bank had previously announced plans to cut its 140,000-person work force by about 8 percent, or 12,000 jobs, this year. It now plans to eliminate 14,000 positions this year and 19,000 in total over the next three years.  As part of those reductions, the investment bank, which has major operations in both New York and London and employed 26,000 at the end of 2013, would shed 7,000 jobs by 2016.  The updated strategy represents a reshaping of the bank under Mr. Jenkins, who took the reins in 2012 after the departure of Robert E. Diamond Jr. and amid a series of scandals that have hurt the bank’s reputation, including the manipulation of benchmark interest rates.  Mr. Diamond, first as head of the investment bank and later as C.E.O., aggressively expanded the investment banking unit, culminating in the 2008 acquisition of the bulk of Lehman Brothers’ investment banking operations. He left the bank under pressure from British regulators.  “We will be a focused international bank, operating only in areas where we have capability, scale and competitive advantage,” Mr. Jenkins said on Thursday. “In the future, Barclays will be leaner, stronger, much better balanced and well positioned to deliver lower volatility, higher returns and growth.”  Like many of its peers in Europe, Barclays plans to put several high-cost, low-growth businesses and underperforming products in an internal bad bank. Some of those businesses “will be attractive to other owners” and will be sold, Mr. Jenkins said. Barclays intends to put 115 billion pounds, or about $194.9 billion, in so-called risk-weighted assets into its bad bank.  These include £90 billion in assets associated with the investment bank, including some fixed income, currencies and commodities businesses. Barclays, for example, recently announced plans to wind down its physical commodities business outside of gold and other precious metals.  On Tuesday, the bank said first-quarter profit fell 5 percent, driven in part by a sharp reduction in trading in its fixed income, currencies and commodities business.  The noncore segment will also house £16 billion in assets as it exits its European retail banking operations outside of Britain, and £9 billion in assets associated with its corporate banking, wealth management and Barclaycard operations. Eric Bommensath, the Barclays co-chief executive of corporate and investment banking, will oversee the noncore businesses.  As a result of the changes, the bank expects to incur an additional £800 million in restructuring charges. Barclays announced last year that it expected to incur about £2.7 billion in charges as part of its overhaul.  The changes come as Barclays and other European banks are facing pressure from regulators to shed riskier businesses and wall off their retail operations to better navigate any future financial crisis.  By 2016, the bank is aiming for an average return on equity greater than 12 percent and to reduce its operating expenses to less than £14.5 billion for its core businesses. The bank aims to limit costs to £17 billion this year, a more aggressive stance than its original target of cutting costs to £17.5 billion.  “We believe the revised strategy is sensible and should be well-received,” Andrew Coombs and Ronit Ghose, analysts with Citigroup, wrote in a research note on Thursday. “While the updated financial targets are broadly consistent with our existing estimates, we think the shift in business mix from investment banking toward retail and commercial could potentially lead to a re-rating in Barclays’ shares.”  Shares of Barclays rose 4.83 percent, to 255.05 pence, in midday trading in London on Thursday.  Reshaping and shrinking the investment bank is the core element of Barclay’s planned overhaul.  “The investment bank is a valuable asset to Barclays and its strength is a differentiator for us,” said Mr. Jenkins, who previously ran the bank’s retail operations. “In the current environment, it consumes too much capital, it does not generate sufficient returns and it is too large a proportion of the group. As currently constituted, it is an unacceptable drag on group returns.”  Thomas King will serve as the sole chief executive of the investment bank.  The bank will reduce its fixed-income unit. Mr. Jenkins said the investment bank was currently “too exposed to volatility” in the trading of bonds, currencies and commodities.  The presentation of the new strategy comes on the heels of several prominent departures in the bank’s investment bank.  Hugh E. McGee III, the head of its American banking operations and a former top banker at Lehman Brothers Holdings, recently left Barclays as a planned restructuring in the American business was announced. This year, the bank has also lost its global chairwoman of investment banking, its global head of mergers and acquisitions and the co-head of its securities business.  On a conference call with analysts, Mr. Jenkins said Barclays anticipated that 2014 would be a transitional year for the investment bank, describing it as “somewhat of a generational change.” He also defended the bank’s increase in compensation.  “The bench that we have in the investment bank, the bench we protected with our compensation actions taken last year, that bench is deep and secure,” he said. “We’re very comfortable with the talent pool. We’re very comfortable with the compensation actions we took last year to protect that bench.”  At the bank’s annual meeting last month, shareholders spent nearly three hours venting frustration over the bank’s decision to increase its bonus pool last year despite a large loss in the fourth quarter.  David Walker, the Barclays chairman, and other top bank officials have defended the decision to increase the compensation pool for 2013, saying the bank faced steep competition for its talent, particularly in the United States.  Banker bonuses have been a lightning rod for criticism by British politicians and the public. While Barclays avoided a bailout during the financial crisis, billions of pounds of taxpayers money went to its rivals.  The reputation of Barclays was severely tarnished in 2012 when it became the first bank to settle with American and British authorities over manipulation of benchmark interest rates, including the London interbank offered rate, or Libor. The bank paid $450 million in penalties.
The overhaul of the giant British bank signals a shift toward retail and commercial banking and away from Wall Street.