Troubled Barclays braced for famously tough incoming new chairman John McFarlane

It is hard to keep a straight face when calling PPI compensation and litigation costs “one-offs” at any of the big banks nowadays.

 

Yet seven years on from the start of the financial crisis, Barclays and the other big banks are still treating the extraordinary costs as unusual items each quarter.

 

Yesterday Barclays set aside another £800m to cover upcoming settlements for attempted foreign exchange benchmark manipulation, and yet another £150m for payment protection insurance mis-selling redress.

 

Barclays flagged up a nine per cent rise in adjusted profits, but when the conduct costs are included, profits dived by 26 per cent to £1.3bn.

 

Incoming chairman John McFarlane is not known in the industry for tolerating unnecessary costs, nor delays in rooting out ongoing problems.

 

At the bank’s annual general meeting last week, a series of small investors stood up to welcome McFarlane and his “axe” and “chainsaw.”

 

Some even warned the board that many of their number might personally face the chop at the hands of McFarlane, such is his reputation.

 

While it is hard to see what he can do to cut the litigation costs, the chairman, who is moving over from Aviva, is likely to take other – potentially drastic – steps to drag Barclays out of its post-crisis malaise.

 

Chief executive Antony Jenkins’ main strategy is to trim any area of the bank with poor returns, and the four key areas he has focused did perform well in the first quarter.

 

But that does not mean McFarlane will simply sit back and accept the current strategic plan.

 

“It is a case of giving more impetus to the current strategy. Barclays needs to improve capital ratios and its return on equity, so he will give a keener focus on that,” said analyst Gary Greenwood from Shore Capital. “The strategy seems to be performing as management expected, if not better. They have pulled their socks up, and now need to keep them pulled up.”

 

Jefferies’ Joseph Dickerson agreed: “I suspect McFarlane will put pressure on executives to cut the non-core business faster than it has been running off.”

 

The most pressure is expected to fall on the investment bank.

 

While it performed well in the first quarter, the results have been relatively volatile – bond trading revenues in particular shot up very sharply across all investment banks across the three-month period.

 

If performance does not pick up in the long-term, some desks in the investment bank could end up in McFarlane’s sights.

 

But what about those shareholders’ warnings that directors or even Jenkins could get the chop?

 

“There will be an initial honeymoon period for first 100 days, which buys some time,” said Richard Hunter from Hargreaves Lansdown.

 

“But I don’t necessarily see it, given the good year end results. And something Barclays could do without is any further destabilising.”