Barclays "most at risk" from bank reforms

City A.M. Reporter
Barclays is most at risk from a government appointed commission's push to reform the sector by protecting and ring-fencing ordinary savers from risky investment banking, a poll showed.

Six out of 11 analysts and fund managers polled said Barclays had the most to lose if the Independent Commission on Banking (ICB) proposes on Monday that British banks form separate subsidiaries for their retail banking operations and investment bank businesses.

The "ring-fencing" model is aimed at protecting ordinary savers if a company's investment bank fails, and to ensure that a bank's "utility" functions – such as money transfers or small business services – still operate in such a scenario.

However, such reforms will also likely result in higher costs and more capital for groups with major investment banking divisions – such as Barclays.

Analysts said all the listed British banks – Barclays, Royal Bank of Scotland, Lloyds, HSBC and Standard Chartered – risked being impacted in some way by the commission's planned reforms.

"We expect a bold document with disposals and subsidiarisation remaining on the table," Deutsche Bank said in a research note.

However, the majority said Barclays faced the biggest possible hit, in terms of higher capital costs on its BarCap investment banking operation, which is larger than similar units at RBS and HSBC.

"If the ICB recommends a high degree a separation, the market will react negatively given costs involved. An increase in funding cost seems inevitable," brokerage Evolution Securities said in a research note.

"As an example, BarCap has around 100 billion pounds of wholesale debt - if the cost of funding for BarCap was to increase by say 100 basis points due to this, the impact could be 1 billion pounds after tax," it added.

Cavendish Asset Management fund manager Paul Mumford agreed that Barclays could be the worst hit from the commission's expected push to ring-fence investment banking and retail banking into separate legal entities.