Depending on your point of view, the investment banking arm of Barclays (LSE: BARC) (NYSE: BCS.US) is either a millstone round the management’s neck or an undervalued source of future profits. One thing is sure: currently it sits unhappily alongside the rest of the group.
Remarkably, finance director Tushar Morzaria has been privately telling analysts and major investors that Barclays doesn’t have a credible plan for its investment bank, according to a recent report on Dow Jones Newswire. That’s worrying. CEO Antony Jenkins’ Project Transform set out a blueprint for the whole group, including the investment bank, a little over a year ago.
Saint Antony stumbles
But Mr Jenkins has a problem. Project Transform was conceived during his honeymoon period, when the newly elevated CEO was dubbed “Saint Antony” for his campaign to clean up Barclays’ image. It has had little traction in the heavily US-based investment bank, most visibly when Mr Jenkins back-tracked over plans to slash bonus payments after being threatened with mass defections.
It casts doubt on whether Mr Jenkins, whose experience is in retail and commercial banking, can control the investment bank. His balanced scorecard sits uneasily alongside a bulge-bracket bonus culture. If the US and UK are two nations divided by a common language, then investment banking and commercial banking are similarly divided by a shared sense of superiority. St. Antony has stumbled in his attempt to slay the Wolves of Wall Street.
Enter the hero
But Mr Morzaria is made of a different mettle, and he might just be the man to tackle the investment banks’ bloated cost base. He’s in charge of a plan to overhaul investment banking, due to be delivered in a couple of months. It’s expected to presage big job cuts and reallocation of capital to other parts of the bank. Poor market conditions, more stringent regulation and stubbornly high remuneration levels have fundamentally altered the profitability of some activities.
Mr Morzaria joined Barclays from J.P. Morgan Chase last October and has already established a reputation for cost-cutting, axing over 800 of the bank’s highest-paid employees. He has worked in investment banking and was finance director of J.P. Morgan’s investment banking unit.
A potential future CEO, he has been tipped as a replacement for the two co-heads of investment banking appointed from the ranks by Mr Jenkins last year after he dispensed with the flamboyant racehorse-owning Rich Ricci.
That attempt to reign-in Barclays’ investment bankers failed. Investors will be hoping that Mr Morzaria will have greater clout and credibility when squaring up to entrenched interests. Barclays’ acquisition of Lehman’s Bank created a potentially world-class investment bank, but it needs strong management to make it work in shareholders’ interests. If Mr Morzaria can work that magic, then Barclays’ shares look cheap.
