Back to top

Analyst Blog

As part of its effort to streamline operations and enhance profitability, Barclays PLC (BCS - Analyst Report) plans to layoff almost 2,000 employees in its investment banking (IB) division. The job cuts are anticipated to be announced in early 2013.

The job cuts are anticipated to be a part of the broad corporate revamp which is likely to be revealed in mid-February next year. The company’s management has been undertaking comprehensive analysis of each of its businesses with an aim to improve profitability.

Further, Barclays has been hit hard by interest-rate-rigging scandal. The restructuring efforts are also a part of this banking giant’s efforts to regain investors’ confidence.

The layoffs are now likely to take place in equities sales and trading divisions based in Asia and continental Europe. The layoffs represent around 9% of Barclays' total investment-banking staff. However, Barclays aims to keep the workforce of its healthy U.S. and UK -based units intact.

According to market rumors, the job cuts in investment-banking unit are a part of a greater number of layoffs across the entire organization, particularly in the information technology segment. The total number of layoffs depends on management’s assessment of the company as a whole.

Earlier in 2008, Barclays purchased the bankrupt North American operations of Lehman Brothers. Ever since, Barclays had aggressively expanded in its investment-banking segment. However, the division had failed to live up to the lofty expectations of management.

Currently, Barclays faces a challenging operating environment in continental Europe. Moreover, the sovereign debt crisis has been a matter of concern and the company has resorted to such restructuring measures to address the waning profits.

Other Investment-Banking Job-Cuts

Majority of the global banks are currently rightsizing their businesses amidst a stressed operating environment, stringent capital norms and Eurozone crisis. Further, most global banks are retreating from the investment banking market on the heels of the plummeting deal volumes as well as reduced fees.

Earlier in October, Swiss banking giant UBS AG (UBS - Analyst Report) slashed 10,000 jobs with roughly 2500 in Switzerland itself. The layoffs were part of the bank’s efforts to reorganize its business by developing core businesses and downsizing troubled units.

In September, Frankfurt-based Deutsche Bank AG (DB) announced its restructuring plans, which followed a 100-day evaluation made by the new co-CEOs – Juergen Fitschen and Anshu Jain. Deutsche Bank’s revamp plan involves change in compensation practices, job cuts as well as assets sales. The company intends to bring down annual costs by €4.5 billion ($5.8 billion) by 2015 and slash more than 1900 jobs, mainly in the investment banking division.

Our Viewpoint

Since the near-term outlook of a rebound in the economy remains uncertain, banks are increasingly resorting to aggressive cost-cutting initiatives to maintain a sound capital buffer for withstanding any financial crisis in the future. Further, as bolstering revenue has become a challenge, banks are elevating profitability through business overhaul and cost containment, including layoffs.

Barclays currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

Please login to Zacks.com or register to post a comment.