Wednesday, 16 February 2011

Diamond cutting through Barclays - updated

With Bob Diamond's observation that 35% of businesses within Barclays are not profitable enough, actions to either close down or improve the profitability of businesses are being felt right across the globe.

First there was the announcement of the removal of investment advisors out of the retail branches (see )

Next has been the announcement of the closing down and putting up for sale the Russian retail banking business. Entering Russian retail banking was a Frits Seegers initiative, something that he had also done when he was at Citibank. Now, with the benefit of hindsight it is not regarded as a good decision. "The purchase by Britain's Barclays of a Russian bank for $745 may turn out being one of the worst foreign investments in Russia," the Vedomosti business daily wrote. Interestingly Soc Gen is having a lot of success with their Russian consumer business and it is now their second largest market by employees and should become their largest international contributor of earnings by 2015, so not everyone believes that foreign banks can't succeed in Russia.

Another venture that Frits Seegers embarked upon that is also being closed down is retail banking in Indonesia. Perhaps no coincidence Mr Seegers is married to a daughter of the late President Sukarno of Indonesia.

Also announced is that the Head of Global Islamic Finance Operations, Harris Irfan  is leaving the Group as "The focus of the organisation has changed back to its core operations and Islamic finance wasn't seen as part of its core business,"  "Barclays will carry on providing the Islamic finance services but in a different way without a global figurehead with expertise in Islamic finance." This is an interesting announcement at a time when a new generation of wealthy muslims is emerging (albeit other extremely wealthy muslims in countries such as Egypt and Tunisia are currently moving off centre stage).
Mr Diamond wants to strip £1bn from running costs by 2013. Some £500m of this will be removed in 2011, so it is safe to assume that these are only the first of many significant changes going across the Group.

Update 18th February: Barclays is in talks to sell its commercial mortgage servicing business, Barclays Capital Mortgage Servicing. This is a business that was set up in 2004. Given the specialised nature of commercial mortgage servicing and the size of Barclays book (estimated to be around £6.8bn) this moves does not come as a surprise.

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