Barclays’ new chief executive set the course firmly towards retail banking yesterday with his first deal since replacing Bob Diamond – the takeover of ING’s British savings and loan business and its 1.5 million customers.
Antony Jenkins, previously head of Barclays‘ retail banking operations, took the top job at the end of August after the Libor interest rate rigging scandal forced Diamond, an investment banker, to resign.
ING said in August it wanted to quit Britain, part of plans to divest assets to increase capital and repay Dutch state aid.
It will effectively pay Barclays to take its ING Direct UK business, including 750 employees, £10.9 billion of deposits and £5.6 billion of mortgages.
Jenkins had already signalled his intention of focusing more on retail banking and less on riskier investment banking.
Barclays will buy the loans at a three per cent discount to their face value, leaving ING with a £259 million loss on the transaction after tax.
“To the extent that this deal signals Antony Jenkins’ revised strategic intentions and lower dependence on the investment bank, we view it as positive,” said Vivek Raja, analyst at Oriel Securities.
In the last week Barclays has announced a shake up at its investment bank to cut costs and prepare for new regulations, and promoted two of the top consumer banking bosses.
Barclays said the acquisition was a good fit with its existing UK retail banking business, where it has about 15 million customers.
ING Direct was launched in Britain in 2003 and was one of the most aggressive new banks, using its distinctive orange lion brand and shaking up the UK savings market with high interest rates thanks to a low cost, mostly online operating model.
The deal will release around £330 million of capital for ING, which is in the process of divesting its insurance operations and other assets in an effort to repay Dutch state aid received in 2008 and increase its capital level.
It sold its Canadian online bank in August, and is trying to sell its Asian investment management and insurance operations, a deal which could raise around $7 billion in total. It later plans to separately list its European and US insurance and investment management businesses.
Jenkins’ first task is reforming culture at a bank that regulators said was taking too many risks. The 51-year-old also needs to revive profitability and try to revive his company’s share price.
Barclays said the ING Direct deal meets Jenkins’ target to deliver return on equity above its 11.5 per cent cost of equity, and would not have a material impact on its capital.
Most banks are struggling to deliver RoE above their cost of equity as tougher regulations have squeezed profits and forced them to hold more capital, limiting their ability to “leverage” their equity.
Barclays delivered an adjusted RoE of just under seven per cent in 2010 and 2011, and Jenkins has promised to take “quick and decisive” action to get that up. He is assessing the bank in 100 parts and in February will unveil what areas he wants to keep and invest in, attempt to turnaround, or get rid of.