Jenkins’ Cautious Path Ahead at Barclays

Barclays’ new CEO Antony Jenkins is a safe pick who is sounding all the right notes. But he’ll need help to meet the regulatory challenges the U.K. bank faces.


Antony Jenkins, the 51-year-old new CEO of Barclays Bank, will have to tread carefully as he strives to rebuild the bank’s reputation after the ignominious departure of Bob Diamond in July. In particular, he will have to rein in and shrink the investment banking business, the principal offender in the Libor scandal, while not damaging a unit that is the source of more than half of the group’s profits. He will have to sound like a radical reformer, but not change too much.

Jenkins, the former head of the retail and business banking division and who has spent almost half his 29-year banking career at Barclays, is exactly the right man to carry out such a strategy, even if he wasn’t the first choice for the job. “He’s a safe pair of clean hands — it helps he’s not an investment banker. But his appointment in itself doesn’t signal a shift in strategy away from investment banking,” says Julian Chillingworth, chief investment officer at investment managers Rathbone Brothers in London, which holds shares in Barclays. The bank had in fact sought to hire a former investment banker, Bill Winters, for the role, according to industry sources, but he turned the offer down. Winters is a former co-CEO of investment banking at J.P. Morgan who has reformist credentials since he was a member of the Independent Commission on Banking which last year recommended ring-fencing retail banks to protect them from the higher risks taken by investment banks.

Jenkins is immediately striking the right notes in his public comments. The Libor scandal revealed some ugly truths about the bank’s culture, especially in investment banking, and Jenkins duly acknowledged in a statement on August 30, the day of his appointment, that “we have made serious mistakes in recent years and clearly failed to keep pace with our stakeholders’ expectations.” With the bank facing a Serious Fraud Office (SFO) investigation into its payments to sovereign investor Qatar Holding in 2008 soon after its Libor problems, he was right to sound humble. But he also praised Barclays as “a strong universal bank,” signaling to investment bankers they are still valued. Barclays Capital, as the investment banking business was then branded, accounted for £2.97 billion ($4.7 billion) of Barclays’ £5.9 billion of pretax profits in the year that ended last December 31.

The new CEO is also immediately sounding realistic about the group’s targets. In early conversations with investors and analysts he has suggested that the 13 percent return on equity target might have to revised downwards to a level closer to the cost of equity, which he puts at around 11 percent. In the first half of 2012, the bank’s return on equity was a mere 9.9 percent.

There are sterner tests ahead for Jenkins, however. “He was by far the best of internal candidates, but is he tough enough to deal with the regulators and politicians?” asks Chris Wheeler, banks analyst at Mediobanca Securities in London. Barclays was fined a total of $450 million in June by the U.S. Commodities and Futures Trading Commission, the Department of Justice and the Financial Services Authority because some of its employees were found to have manipulated the London Interbank Offered Rate. Its culture have been extensively criticized, notably by the FSA chairman Lord Turner who told the Treasury Select Committee in July that Barclays had “a culture of gaming,” a tendency to push the limits of the rules and of not being completely open. Now, as well as the SFO and continuing Libor investigations, Barclays will also be under scrutiny during a U.K. parliamentary enquiry into banking culture this year. “There is a danger that morale could collapse at the investment bank if, as the new chairman Sir David Walker has hinted, the business is shrunk by 20 percent.”

Walker, 72, who will take over as chairman in November once Marcus Agius has departed, has said he will review the balance between retail and investment banking. Jenkins will have to rely heavily on Walker’s highly complementary experience, embracing as it does both investment banking and regulation. He is both a former London-based chairman of Morgan Stanley International and a former executive director of the Bank of England.