LONDON Britain's Barclays reined in its ambitions to be a Wall Street powerhouse on Thursday and signalled a return to its retail banking roots with a plan to hive off much of its investment bank and axe one in four jobs at the division.
Chief Executive Antony Jenkins, in his second strategic review since taking over as CEO in 2012, will cut 19,000 jobs in the next three years, 7,000 of them at the investment bank, and park 115 billion euros worth of risk-weighted assets in a new "bad bank".
A slide in trading revenue due to investor uncertainty and tough post-crisis regulation combined with a string of senior staff departures and a row with shareholders over bonuses have forced Jenkins to take a knife to the investment bank, built up under his predecessor Bob Diamond and once the group's profit engine.
Jenkins said the recent halt in the trading boom was not just due to a cyclical ebb but was partly permanent, as regulators have tightened the screws on large banks in the past 12 months, making some trading activities too costly to pursue.
"We also believe the economic environment has deteriorated for the FICC (fixed income, currencies and commodities) business and some of the pressures we saw on the business towards the end of last year are clearly structural as well as cyclical, so now is the right time to reposition the bank," Jenkins told CNBC.
Some 90 billion euros worth of risk-weighted assets from the investment bank will be put in the bad bank, including some commodities and emerging markets products and some of its derivatives book.
The carve-up means the investment bank will account for no more than 30 percent of Barclays' risk-weighted assets, down from half now. It will give greater prominence to Barclays' retail operations in Britain, its Barclaycard credit card arm and its African business.
Jenkins, the former boss of Barclays' retail division, is also parking all of Barclays' European retail banking operations in Italy, France, Spain and Portugal, and some corporate and Barclaycard assets in the bad bank. He said parts of the European operations could be sold or floated.
Jenkins was due to give analysts and investors more details on the restructuring at a briefing from 10 a.m. (0900 GMT).
Investors welcomed the plans, which are designed to boost shareholder returns by 2016. Barclays kept a targeted dividend pay-out ratio of 40 to 50 percent of net profit and is aiming to deliver a return on equity in its core business of over 12 percent. Its RoE was just 4.5 percent last year.
Barclays' shares jumped more than 5 percent to 255.8 pence, the top gainer in the FTSE 100 index and in the European banking index.
Jenkins has set out to turn around Barclays since taking over as CEO in August 2012 when investment banker Diamond was ousted following a scandal over the rigging of benchmark interest rates.
But Jenkins' plan to drive the bank's returns over its cost of capital - estimated at 10.5 percent - has been tripped up by a grim trading environment and uncertainty among staff about his vision for the investment bank, which has prompted the departure of some senior employees.
Jenkins, who had vowed to overhaul Barclays' high-risk, high-reward culture, then got into hot water with investors earlier this year when he raised bonuses for investment bankers despite a fall in profits.
A 41 percent slide in trading in debt, currencies and commodities in the first quarter, unveiled on Tuesday, put Barclays at the bottom of its peer group and laid bare the challenge he faces.
It also marked a contrast with rivals such as Swiss bank UBS, which set up a bad bank in 2008 after being laid low by the financial crisis and drastically reined in its risky trading operations in 2012, helping it to return to profit.
Bad banks have been deployed by a variety of banks in the wake of the financial crisis as a way of drawing a clear line between past business and future direction. They have also been used as a way of hiving off problematic loans in countries such as Ireland, Spain and, more recently, Italy.
Eric Bommensath, currently co-head of the investment bank, will run the bad bank. Tom King, Bommensath's co-head, will take over sole responsibility for the investment bank.
As a result of the latest strategic review, Barclays will incur a further 800 million pounds of costs on top of 2.7 billion pounds already announced.
(Reporting by Steve Slater; editing by Carmel Crimmins and Tom Pfeiffer)