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Reuters reported that Barclays PLC (BCS - Snapshot Report) intends to conduct a strategic review of its retail operation in the United Arab Emirates (UAE). As per anonymous sources, the business review might result in divestment of the company’s retail business in the UAE.

However, the internal review is still in its nascent stage and nothing is officially confirmed yet. Barclays has still not hired consultants or financial advisors to look for buyers for the expected divesture.

Nevertheless, Barclays’ retail business unit will expectedly be bought by some local bank as most of these banks are at present seeking to expand. These local banks are well endowed with capital and they do not have to face the stringent regulations that are applicable for their foreign counterparts.

The strategic review is part of the cost-cutting measures adopted by Barclays. In an attempt to control costs and effectively counter the new regulatory restrictions on risk, the company intends to slash 3,700 jobs, restrain senior bankers’ remuneration and close unproductive business units across the globe to save $2.6 billion annually.

Additionally, over the years, the banking business has become very competitive in the UAE, which at present has 51 listed commercial banks including 23 local banks and 28 foreign banks. The foreign banks have to compete with local banks enjoying the aforementioned comparative advantage.

Barclays is not the only global bank that plans to sell off its UAE retail operations. Over the last few years, there have been quite a few divestitures by global banks. In 2012, Lloyds Banking Group plc’s (LYG - Snapshot Report) vended off its onshore retail, corporate and commercial banking business in the UAE to HSBC Bank Middle East Ltd, an indirect wholly owed subsidiary of HSBC Holdings plc . Additionally, in 2010, The Royal Bank of Scotland Group plc (RBS - Snapshot Report) divested its retail unit as well as small and medium enterprise businesses to Abu Dhabi Commercial Bank.

Notably, Barclays' corporate banking, private banking and investment banking activities in the UAE, along with its profitable retails business unit in Egypt are not under consideration for review.

Moreover, in May 2012, Barclays announced the sale of its 19.6% stake (35.2 million shares) in BlackRock in order to meet the Basel III capital requirements. Though the global economy is gradually improving, it continues to be volatile. Hence, financial institutions such as Barclays are forced to reduce costs to enhance profitability and facilitate the conformity to stringent regulations.

Currently, Barclays carries a Zacks Rank #2 (Buy).

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