Any business overhaul is easily called “radical”. But the revamp of Barclays’ investment bank – including apparently sweeping away the two executives at its top – can justifiably lay claim to the description.

The shake-up is the latest sign of the bank’s continuing unease about its high-octane, headline-grabbing division.

The investment bank formerly known as BarCap has guaranteed Barclays will make money (even in 2013 it accounted for almost half of adjusted pre-tax profit) but also that it will make enemies (bonuses rising as profit fell).

To date, Antony Jenkins has resisted pressure to shrink the unit. Now, its lower return on equity (down to 8.2 per cent from 12.2 per cent) and the prospect of a significant hit to its fixed income, currencies and commodities operations have provided ammunition to critics who would prefer a smaller, tamer and low-cost investment bank.

If Barclays could house-train such an organisation, its coup would be even more striking than the group’s acquisition of what was left of Lehman Brothers. But the omens are bad.

The chill of European disapproval will not stop New York banks from paying their own high-achievers well.

Ultimately, Barclays’ choice is stark: sustain a full-on investment bank and take the domestic pain; or accept that the whole adventure is over – and with it the chance to influence investment banking culture. Either way, it should be a conscious strategic decision, not an inadvertent side-effect of bonus worries.

Dalton’s stroll in the dark

Write-offs of £163m on Kiddicare, a retailer of strollers and other tot-wrangling kit, reflect the dither that left Wm Morrison with a £176m pre-tax loss in 2013-14. Chief executive Dalton Philips spent £70m on the acquisition in 2011 and ill-advisedly bought into dreams of a Mothercare rival hatched by Kiddicare boss Scott Weavers-Wright.

Instead, Mr Philips should have focused on the threat to Morrison from discounters such as Aldi. Thursday’s strategy overhaul represents a belated Big Bang response.

Morrison will spend more than £300m a year for three years on price cuts. Underlying profits will drop to about £350m next year from £785m in 2013-14. Yet, surprisingly, the group, which is 60 per cent geared, expects to raise scantily covered dividends.

Mr Philips plans to release £1bn over three years in cash flow partly thanks to lower capex, and another £1bn from real estate sales. Ocado is supplying the online groceries platform Kiddicare failed to.

Why has it taken activist pressure and rumours of a bid from the Morrison family to prompt actions that should have been on Mr Philips’ agenda for years? And are the planned price cuts enough in the context of a £170bn UK groceries market to tilt customer behaviour back in Morrison’s favour?

The new strategy looks like a large, if unavoidable, gamble.

Mr Weavers-Wright has meanwhile set up a venture capital company. Its interests include a start-up incubator in the throbbing technopolis of Stamford, Lincs. Guess who got the lucky end of the wishbone in the deal with Morrison.

Secondee thoughts

Entrepreneurs distrust consultants who help banks manage loan portfolios. Advisers who proclaim a business doomed or its security impaired sometimes then earn a fee as administrators or receivers. The potential conflict of interest is clear.

Lloyds and Alder King, a valuer and receiver, reject such complaints from Welsh businessmen Kashif Shabir and Alun Richards. The properties of the two developers were sold by Alder King on behalf of Lloyds, their main lender, after the financial crisis.

Jonathan Miles, an Alder King partner, was working within Lloyds. Mr Shabir and Mr Richards say letters he sent on Lloyds letterhead gave the impression he was a Lloyds executive. The bank and a law firm acting for Alder King disagree, saying Mr Miles’s secondee status was fully declared.

In one 2009 letter on Lloyds letterhead, Mr Miles, who gives no job title, tells Mr Richards “I am disappointed to note that we have not received a satisfactory repayment proposal . . . we are left with no alternative but to instruct our litigation team to obtain possession and appoint receivers accordingly”.

Lloyds now requires consultants in debt recovery to state they are secondees in correspondence. Good. Letters of the kind sent by Mr Miles could misleadingly imply an adviser is fulfilling an executive role.

The bigger question is whether banks should employ consultants to both advise on the solidity of borrowers and realise collateral after their condition is judged irremediable. They should not.

alison.smith@ft.com

Morrison and Lloyds: jonathan.guthrie@ft.com

Copyright The Financial Times Limited 2024. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article

Comments