As part of its aggressive cost management program, British banking giant Barclays PLC (BCS) recently announced to move 4000 jobs overseas. Eric Brommensath, the company’s co-CEO of corporate and investment banking, briefed that the shift of these positions to more economic locations abroad would enable cost savings of £250 million ($381 million).
The jobs to be relocated pertain to the administration and management of computers and data. The move is expected to be complete by 2015, but the company is yet to divulge the future locations of these jobs.
“Go-To” Bank for Its Shareholders
Barclays is in the process of rationalizing its branch operations by primarily focusing on mass affluent market. This is part of its “Transform Programme,” as Barclays is molding to become “Go-To” bank for its stakeholders.
Of late, the company was involved in restructuring its Europe Retail and Business Banking by reducing headcount by about 2,000 and distribution network by 30%.
Overseas Job Move: An Attempt to Repair Its Reputation?
The London Interbank Offered Rate (LIBOR) manipulation scandal imposed a fine of £290 million ($453 million) on Barclays in Jun 2012, partly tarnishing the company’s reputation. Antony Jenkins, who stepped in as the CEO right after the scandal, seems to reinstate the company’s reputation by doing away with embroiled management staff.
Moreover, the latest job relocations will result in overall cost reduction, thereby enabling the company’s increased returns to be used in financing the Transform Programme.
Increase in Leverage Ratio Requirement
Notably, Prudential Regulation Authority (PRA) has increased Barclays’ leverage ratio target from 2.5% to 3.0% by the end of 2015. Further, Barclays has to raise capital worth £1.7 billion ($2.7 billion) to withstand losses, risks and fines as per the new guidelines. However, complying with the protocol may require the company to compress its lending, which may hamper its profitability.
Nevertheless, Barclays is proposing an agreement with PRA and the actual proceedings will become known to investors in the next 4 weeks.
Conclusion
Amid a volatile economic environment, where all the other strategies to improve profitability failed, Barclays was compelled to adopt aggressive cost cutting measures – comprising layoffs and job shifts. However, the proposed job shifts will strengthen the company’s footprints worldwide and boost its long-term profitability.
Currently, Barclays carries a Zacks Rank #4 (Sell), offering an unfavorable investment proposition.
Some better performing foreign banks worth considering are Mitsubishi UFJ Financial Group, Inc. (MTU) and Sumitomo Mitsui Financial Group Inc. (SMFG) – both with a Zacks Rank #1 (Strong Buy), and Lloyds Banking Group plc (LYG) – with Zacks Rank #2 (Buy).
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