Tim Throsby, a former JPMorgan banker hired by Barclays amid much fanfare to run its investment bank, drafted an email over the weekend of March 23-24. By the time he got round to sending it to CEO Jess Staley, he was already out.
The subject line of the email, according to someone who had seen it, was “irreconcilable.”
The email was sent to Staley and a number of other senior leaders March 28, a day after his shock departure from Barclays was announced, and rehashed the concerns he held over his boss’ strategy. The email said Staley planned for cost reductions and job cuts — including a 20% cut to total compensation — for Barclays International as well as a reduction in reserves held in case of credit losses, according to the person.
Throsby noted in his message that he had planned on discussing the points in the email with Staley before he was shown the door, according to the person.
The former CEO of Barclays International and head of the investment bank was blanching at what he considered unrealistic and destructive demands and targets set by Staley, according to people familiar with the email. Throsby, known for his brazen, headstrong style, thought Staley’s goals to boost profitability, dividends, and buybacks weren’t possible — that the demands were “irreconcilable,” the people said.
It was this difference in vision about the future of Barclays that have may led to Throsby’s downfall.
The episode, and the contents of the email, holds implications for whether Barclays can meet the activist Sherborne Investors’ demands without gutting the investment bank, and ultimately, how long Staley will be able to keep his job.
Throsby did not respond to multiple requests for comment. Barclays declined to comment.
In the email, Throsby criticized parts of Staley’s strategy to boost firmwide return on tangible equity to more than 9% — a figure he felt no investor realistically expected the firm to reach this year. The strategy to get there involved boosting revenues for Barclays International by 5% while reducing compensation costs by 20% which included cutting jobs, according to the email. Staley also detailed what he said was a plan to scale back the firm’s risk as well as impairment reserves held to buffer against potential credit losses, according to a source who had read the email.
It isn’t clear whether specific plans discussed in the email remain in effect. A person familiar with the matter said the firm’s executive committee agreed to a plan to reach the more than 9% target since Throsby’s departure.
But Throsby seemingly considered them serious enough to draft the email and to send it after he left. And the concerns appear to be at the crux of his disagreement with Staley.
The firm’s investment banking division had a strong year in 2018 and recaptured market share, especially in sales and trading, which increased 13% to $6.5 billion in revenues. Barclays was home to the fastest-growing equities shop in the industry, growing that business by 30%. The return on tangible equity in the investment bank more than doubled over the past two years to 7.1%, but it still lagged behind the rest of the bank.
Nonetheless, Staley — who is trying to quell investor discontent and fight off Sherborne CEO Edward Bramson’s campaign for a board seat and deep cuts to the investment bank — raised the firmwide return on tangible equity target to more than 9% for 2019 and 10% in 2020. Barclays International, the division Throsby ran that holds the corporate and investment bank as well as its US payments and cards division, accounts for around two thirds of the bank’s revenues.
Not only that, in February Staley promised to return more capital to investors in the form of buybacks and dividends. Barclays has cut dividends in recent years to deploy more capital to cleaning up its balance sheet and turning around its investment bank, and it hasn’t done a buyback since 2015.
These ambitious goals came amid a brutal first-quarter trading environment, with most banks expected to announce double-digit declines in markets revenues, according to analyst estimates. Trading fell 17% at JPMorgan Chase, which reported earnings Friday.
“The board recognises that Barclays does not yet perform at the level at which it should,” Barclays said in a statement on Thursday that outlined its defense against Sherborne. “We are highly focused on business execution to deliver returns above our cost of equity. Another strategic overhaul is not what Barclays needs right now.”
To reach Staley’s return targets, the bank must slash costs by 7%, Bank of America estimated in a note earlier this month, saying that “looks hard to do even if investment spend is delayed.”
But Throsby thought cost cuts and a pullback in risk would be destructive to morale and culture, especially after the firm went on a hiring spree in the past year to help jump-start the investment bank, according to a person familiar with the email. He also questioned the wisdom of the more aggressive approach to their impairment reserves.
Throsby wrote that the interplay between Staley’s demands were what some might call an “impossibility,” according to a source that read the email.
Bracing for the fallout
The ouster of Throsby, followed shortly by the departure of his deputy, Art Mbanefo, shocked many both inside and outside the bank, and has left employees anxious about a future without the top two leaders that had led the investment bank’s turnaround.
While Throsby was the external face of Barclay’s investment bank, Mbanefo, a 10-year veteran of the bank who previously ran markets in Europe and Asia, was more of the internal face and enforcer of his boss’ strategy. As CIO of Barclays International, he ran day-to-day operations for Barclays International and straddled many roles, including overseeing business managers and the office of the CEO and supervising markets.
On Mbanefo’s last day at the office on April 3, scores of Barclays employees gathered to line the hallways in the New York headquarters and gave him a long standing ovation, according to people present that day. Mbanefo, who was known to be brusque and kept a “bullsh*t” button on his desk according to those who’d seen it, walked out giving hugs and shaking hands as he left the building for the last time as a Barclays employee.
Amid the loss of the senior leaders, insiders worry about the strategy for the investment bank going forward and whether job cuts are looming.
Protecting against such cuts appears to be, in part, what Throsby clashed with Staley over.
The firm has also lost leaders who were critical in crafting the original activist defense against Bramson at a time when Bramson is only cranking up the pressure further. Mbanefo and his Firmwide Resource Management unit was charged with optimizing the firm’s balance sheet and squeezing out capital to deploy toward revenue-generating operations.
“Most people don’t understand what’s next,” a Barclays insider said. “People had bought lock, stock, and barrel into what Tim was building.”