Don’t read too much into shift of focus – it started under Bob

Elizabeth Fournier
BARCLAYS’ purchase of ING Direct UK is being seen by many as yet another sign that the bank’s focus, under new chief executive Antony Jenkins, has shifted firmly to its retail arm.

Jenkins’ early speeches have certainly been littered with regulator-pleasing pledges to shape up, putting him at the front of a queue of UK bank chiefs lining up to offer promises of cultural change at their institutions.

But the ING deal smells more like the work of a Barclays man with much stronger ties to Jenkins’ predecessor Bob Diamond – finance chief Chris Lucas. The straight man to Diamond’s more mercurial persona, Lucas joined the board in early 2007, and has been pursuing what Ian Gordon at Investec calls a “string of small, value-accretive, bolt-on retail acquisitions” ever since.

Following on from Standard Life bank in 2009 and Egg in March last year, the ING Direct deal fits with Lucas’ drive to focus solely on deals that are instantly value accretive – this latest one is not only expected to instantly boost return on equity (ROE) when it completes early next year, but should also have no material impact on the bank’s core Tier 1 capital.

Though the acquisition strategy may not be Jenkins’ doing – and in fact negotiations for this deal kicked off when Diamond was still around – the deal’s credentials will be music to his ears. ING Direct’s mortgage book – valued at £5.6bn with a 50 per cent loan-to-value ratio – boosts the retail unit without impacting cash reserves, and all at a three per cent discount to face value. It should also help Jenkins’ mission to deliver an ROE above the bank’s 11 per cent cost of equity – a steep climb given that for the last two years its come in at under seven per cent.

The new boss has promised to outline his plans for Barclays (all 100 parts of it) in February. Until then, investors should take this deal at face value, and hold tight.

Elizabeth Fournier is news editor of City A.M.