In a surprising move, Barclays (LSE: BARC) (NYSE: BCS.US) announced this morning that it has fired chief executive Antony Jenkins, after only three years at the helm.
It turns out that Jenkins had lost the confidence of the group’s non-executive directors. The decision to oust him was made on the sidelines of an annual off-site board meeting two weeks ago.
Jenkins is being replaced by John McFarlane on an interim basis.
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Accelerate the pace of execution
According to Barclays, today’s leadership change does not signal any major strategy change. Mr McFarlane’s appointment is simply designed to “accelerate the pace of execution“. Indeed, John McFarlane has a reputation as a ruthless turnaround specialist.
Commenting on the management overhaul, Sir Michael Rake, Barclays’ deputy chairman said:
“…it became clear to all of us that a new set of skills were required for the period ahead.”
In another statement Barclays said:
“…new leadership is required to accelerate the pace of execution…”
Analysts are already starting to speculate that an accelerated cost-cutting programme is now on the cards for Barclays. Further job losses are likely and non-core divisions, like Barclays’ investment bank and Western European retail businesses, could also be on the chopping block.
Mr Jenkins has struggled to get to grips with Barclays’ investment bank — which has become the group’s worst performing division — during his short term as the bank’s CEO.
Good news
Barclays’ shares have jumped by 3.2% in early trade this morning, so it seems as if the market supports the bank’s decision to kick Mr Jenkins out.
And there are plenty of reasons to be upbeat. Indeed, while Mr Jenkins recently declared that the bank was in its best shape since the financial crisis, there’s still plenty of work for the group to do before it returns to growth.
For example, there’s still a considerable amount of drag on Barclays’ earnings from the group’s non-core business. Unnecessary bureaucracy is also eating into returns according to analysts.
Tackling key issues
It is believed that Mr McFarlane will now look to tackle these issues head on. An enlarged cost-cutting programme is on the cards and analysts expect the bank to announce a further restructuring of its investment bank.
Barclays used to generate the majority of its profits from its investment bank. But now, the division has become weighed down by regulation and slower market activity.
The investment bank’s return on equity — a key measure of profitability — dropped to only 2.9% last year. In comparison, Barclays’ personal and corporate banking arm reported a return on equity of 11.9% for full-year 2014.
Moreover, Barclays’ growth is being held back by the group’s “bad bank”. Simply put, a bad bank is the equivalent of a financial dustbin and contains all the risky loans and toxic financial products that Barclays wants to dispose of.
Barclays is in the process of winding down its bad bank, but the process is taking time. With a new CEO, it is believed that the process of selling off toxic assets will be accelerated.
The bottom line
Overall, Barclays’ decision to fire Antony Jenkins was made in an attempt to speed up the bank’s restructuring and recovery.
Only time will tell if this was the right decision. However, the market’s initial reaction suggests that investors fully support the move.
