EXECUTIVES at Barclays are preparing for a “disaster” scenario when the Independent Commission on Banking (ICB) releases its interim report on Monday, which could involve an ultra hard-line ring-fencing of bank functions.
Banks are said to be “petrified” that the report could signal a major industry overhaul. In pre-briefings this week, analysts have been told that a hard-line model could stop just short of breaking up ownership of retail and investment banks, but could impose restrictions on cross-selling financial products between subsidiaries.
That would mean, for example, that a retail bank would not be able to hedge its sale of a variable-rate mortgage by buying an interest rate swap from its investment banking arm, or that it would have to demonstrate that it was doing so on the product’s merits alone, rather than because of a widespread culture of cross-selling.
Analysts at Societe Generale estimated this week that “full subsidiarisation... could reduce [Barclays] group profits by circa 30 per cent” – slicing £2bn off the bank’s bottom line.
However, other analysts think that such a harsh approach is ultimately unlikely, even if the ICB lays out the possibility on Monday.
The banks have secured a minor concession that allows them to view the report half an hour before it is published at 7am, but this will probably not give them time to produce much more than a generic statement before markets open.