Barclays sounds warning over reduced lending

Barclays' chief executive Antony Jenkins warned on Friday that the bank may need to cut lending in order to meet the Prudential Regulation Authority (PRA)'s new 3% leverage ratio.

Jenkins said Barclays would be able to achieve this by 2015, but feared the PRA would expect it to be faster.

"We have options to accelerate with minor income effects, but an aggressive acceleration requirement from the PRA would require additional actions and could restrict our ability to extend balance sheet availability to customers," said Jenkins, adding that this could include lending to the UK and other economies.

The comments were made as Tom King and Eric Bommersath, chief executives of Barcap, Barclays' investment-banking division, outlined plans to make Barclays the "Go-To" investment bank.

Bommersath said to achieve this goal, Barcap needed to focus on "building strong and deep relationships, which translate into higher and more stable returns over the long term", while King pointed out that Barcap had increased its fee market share from 3.2% in 2009 to 5.2% in the first quarter of 2013, while continuing to employ fewer people than its competitors.

He predicted the business would have a return on equity of more than 14% by 2015, excluding legacy assets, and concluded: "[We] have confidence that we're not only going to be a survivor in this industry, but that we're also going to be one of the winners."

Analyst view

"Barclays provided a coherent explanation as to why Barcap earnings should continue to progress," commented Ian Gordon, an analyst at Investec.

"Indeed, with clear line-of-sight in terms of Barcap cost improvements, we increasingly see Barcap earnings growth as more predictable and sustainable than the contribution from "higher-quality" earnings across its retail/commercial banking operations."

He concluded: "The Barcap transformation is, in our view, very much a cost-led strategy - delivery of which should be increasingly visible in coming quarters."

But Gary Greenwood, an analyst at Shore Capital, described the seminar as "a largely unexciting event" with the exception of Jenkins' comment about the PRA's leverage ratio.

"According to the Sunday Times, this comment has sparked a ferocious backlash from the Bank of England's Andrew Bailey, who is alleged to be considering forcing Barclays to shrink its investment bank in order to meet its leverage ratio target, as an alternative to cutting back on lending," he said.

"We believe the regulator is well within its rights to set capital ratios how it sees fit but think that it would be over-stepping the mark to dictate how Barclays should achieve this.

"While such an approach may be acceptable for the partially state-owned banks, Barclays is a wholly independent organisation and its management should surely be allowed to run the business as it sees fit."