Barclays 2015 Annual Report Download - page 5

A New Corporate Structure
Following the statutory decision in the UK to ring-fence UK retail and
small business banking by 2019, we decided to bring forward the
establishment of the new bank and an application will be made for
regulatory approval. When implemented, it will result (pending sell-down
of our stake in Barclays Africa Group Limited) in three separate banks
that we currently refer to as ‘Barclays UK’, ‘Barclays Corporate &
International’ and ‘Barclays Africa’, each of which will have its own board,
chief executive, management team and certain operational services. So
as to prepare ourselves for this new structure, we are reorganising the
divisional structure along these lines. This has the additional benefit of
decentralising the very large corporate centre and results in a more
streamlined, accountable and lower cost organisation. It also enhances
the Group’s strategic flexibility and options going forward.
Underpinning Future Earnings Performance
The decisions to change leadership, to reduce our exposure to non-
strategic businesses, as well as implementing our leaner corporate
structure should have significant positive earnings and capital outcomes.
These are necessary but not sufficient. We are investing in our segments
with the highest growth and return prospects, including UK retail
banking and Barclaycard. The Investment Bank, even in its more focused
form, faces unpredictable market prospects. The Board has agreed a
medium-term plan that is designed to produce increased returns in the
future, that we will continue to monitor closely. Additionally, Barclays has
a heavy overhead structure that needs streamlining. To this end, we
have initiated a Group-wide overhead reduction programme, hiring
restrictions, and a very limited number of senior salary increases. These
should begin to deal with those matters within our control.
Historical Regulatory and Conduct Matters
We continue to be subject to very significant capital and conduct
charges by regulators and governments that frankly are not sustainable.
They arise understandably from the position that banks engendered in
the Global Financial Crisis and from conduct issues that we have been
working hard to address. While justified in principle, in practice they have
achieved a level that is undermining our transformational efforts, and
those of the regulators, to build capital and support economic growth.
Banks are seen by many as unpopular and having deep pockets. But
those pockets belong to our shareholders, who pay penalties out of
current and future earnings that would otherwise build capital.
We are half the size we were a few years ago and the narrowing of our
focus as a result of current decisions will make Barclays better capitalized
and less globally systemic. But as we shrink the bank, we reduce our
ability to pay outsized conduct charges. The charges are not
proportionate to our smaller size and ability to pay relative to many of
our peers. Our FX fines are an example. We paid one of the highest
amounts in penalties of the banks who settled with the government,
even though the offense was the same, even though we are by some
measures one half the size of other banks that settled, and even though
we received acknowledgement for our cultural changes and remediation
after our LIBOR settlement. When conduct charges consume our profits,
as they have for the past three years, we have no choice but to meet
them by shrinking our franchise – selling or closing businesses – which
reduces our capacity to support the real economy. A £50m fine or
penalty is the equivalent of employing 1,000 fewer employees, closing
100 small regional branches, or foregoing the capacity to lend over
£500m to small businesses or consumers. The societal costs of
excessive penalties is very real.
EU Referendum
On balance we think it is in the interests of our customers and clients
for the UK to remain in the EU. We have modest interests domestically
on the continent, but provide significant services to European companies
from London. More importantly, we are heavily reliant on a successful
UK domestic and international economy and feel this is enhanced
through the UK’s membership.
Thank You
Being on a bank board today is not for the faint-hearted. I would
therefore like to thank our Board for their contribution to our company.
Fortunately, the Barclays name is able to attract people with the finest
credentials. I would particularly like to thank Sir David Walker, my
predecessor, who retired at our AGM in April. He did an incredible job by
providing wise oversight and a stable hand and we are grateful to him. I
would once again like to thank Antony Jenkins, our former Chief
Executive for all that he did for Barclays. He took over as Chief Executive
at an extremely difficult time for the organisation and was able to
provide the stability that was necessary and to advance significantly the
culture and values of the organisation, much of which had been eroded.
Sir Michael Rake, our Senior Independent Director retired at the end of
last year after eight years, and Sir John Sunderland at our last AGM after
a similar tenure and we are grateful to both for their enormous
contribution.
I would particularly like to thank our staff across the organisation for
coming every day to serve our customers, without whom we would not
have an enterprise. I would also pay respect to our shareholders who
have had a pretty miserable time, but who have supported us
throughout. Your patience will be rewarded.
A New Beginning
In the eye of the storm it is difficult to sustain or engender faith in the
organisation and in its future. For my part, while we continue to be
buffeted by historical matters and the political and regulatory
environment, I have never lost sight on the end game, the way forward
and our eventual success. It has been a very active and decisive year for
our company as will be the year ahead. Through decisions already taken,
we will quickly reach a more stable and productive foundation.
We are though not without residual challenges, including an uncertain
economic environment, as well as further historical regulatory penalties
and remedies that will haunt us for some years. We are nevertheless
working hard to put these behind us. This will ultimately be achieved
although in the interim we would hope for a more proportional attitude
from governments and conduct regulators towards banks. However, the
conservative assumption, based on our experience, is that any success
we do achieve is more likely to arise from our own efforts.
Priorities for the Future
Now that we are getting back to core, our priorities going forward are to:
 generate greater value from our portfolio, including bringing the
Investment Bank to returns above the cost of equity and the Group
cost-income ratio below 60%
 execute in the least value-destructive way the rundown of our
historical and newly designated non-core businesses and assets
 implement the structural reform programme, the creation of the
ring-fenced bank and the effective operation of the new decentralised
divisional structure
 put historical conduct matters finally behind us
 become a more externally and customer focused company, with a
strong performance ethic and underpinned by strong customer,
people and community values.
John McFarlane
Chairman
home.barclays/annualreport Barclays PLC Annual Report 2015 I 03
The Strategic Report Governance Risk review Financial review Financial statements Shareholder information