Barclays investment banking overhaul could see 10% of headcount cut

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The strategic overhaul of Barclays investment bank is likely to result in a headcount reduction of 10% over the next two years, or around 2,300 people, and no significant changes are expected. Instead, compensation is likely to be targeted.

While many investment bankers at Barclays may be sweating over the outcome of 'Project Mango', which is due to be unveiled in February, Ian Gordon, a respected banking analyst at Invesco, is expecting it to be less of a big bang and more of a gentle rocking.

The announcement on 12 February will: “undoubtedly contain a few platitudes to satisfy the ‘reform’ lobby, we do not see this as unduly significant in terms of headcount, nor actual cost reduction or revenue attribution."

He predicts that 10% of headcount will be cut at the investment bank, but redundancies will be phased in gradually over the course of the next two years. The Times also suggests that Barclays will pull out of soft commodities trading, which is susceptible to accusations of manipulation.

Gordon is not the first banking analyst to have his say on what Barclays' strategic review needs to achieve. In December, Goldman Sachs analysts suggested that costs need to be cut dramatically in the investment bank, either by eliminating up to 3,500 jobs or cutting everyone's pay by 30%. Costs at the investment bank accounted for 59% of the investment banks' income in the first nine months of 2012, with compensation making up 66% of this.

An article in the Financial Times in November also suggested that investors were calling for Barclays to pull out of equities entirely (something discounted by senior executives at the bank), while J.P. Morgan analysts suggested that it should shrink its over-sized investment bank dramatically - possibly even stripping out £1.1bn in costs to help achieve a 9.1% RoE.

Gordon's prognosis, therefore, is comparatively reassuring, but still presents some problems for Barclays.

The £65k ($100k) cash cap on bonuses at Barclays last year has already caused some unrest with top bankers in its thriving U.S. M&A division, who have threatened to walk if it's imposed again last year. It therefore seems more likely that the bonus pool in London will be targeted. However, new figures from data provider Dealogic suggest that Barclays was the top of the UK league tables in 2012, with $297m (£184m) in revenues.

Barclays may have to pay to placate the bankers it wants to keep hold of, but the bonus pool is likely to be reduced regardless. In a previous note, Gordon suggested that bonuses will be reduced by 20% on the £1.6bn paid out last year.

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