Barclays embarked on a great experiment in private banking two years ago, deciding on a sort of doppelganger strategy to carve up the business into a wealth and investments operation residing cosily within its safer ring-fenced retail banking side while separating off private banking into its own related divisions.
Under the realignment, Private Banking and Overseas Services (PB&OS) is part of Barclays International – and is symbiotically tied to Barclays Investment Bank and the International Cards businesses. There, it can offer high-tech financial services targeted at higher net worth clients with a range of needs beyond pure private investment management.
In a rare interview, the head of the private bank Karen Frank declares that her operation, contrary to assertions by some critics, has achieved “transformational change”.
She told thewealthnet, “This means that in 2018 our bankers now have new tools and improved capabilities so they have more time and capacity to spend supporting our clients.”
The business “is performing, client balances have grown considerably, we have achieved our revenue targets for 2017 and improved returns. We also have strong governance and control functions supporting all of PB&OS in the right way, to achieve strong, sustainable growth for this year and next.”
That being said, sniping from rival banks claims that the chosen ring-fencing choice was a clumsy and overly bureaucratic approach in response to the regulatory need to protect smaller clients in a safer environment, insulated from higher-risk investment banking and corporate trading.
“I feel Barclays are making it super complex for staff, clients and management overseeing the private banking by an unnatural split,” contends the head of a rival London private bank, speaking confidentially.
Not so, Ms Frank retorts. “Staying close to our clients and using every opportunity to strengthen our relevance to them is critical to our success. We are expanding the range of investment, banking and credit solutions for our clients to meet their diverse needs and provide interesting solutions to put their money to work.”
Ms Frank went on, “By leveraging the expertise of colleagues from across Barclays International, we can further support our clients and deepen these important relationships going forward.”
She does concede, however, that the Barclays structural reform programme is a big project, saying: “We know there is still work to do but it’s a testament to the quality and dedication of our teams that we finished 2017 so well with minimal disruption to our clients.”
(Within Barclays, it is also pointed out that separating the private bank and Barclays Wealth was in line with UK regulatory requirements, which had forced Barclays to find a solution to ring-fencing demands. For Barclays, with its large UK retail and wealth business, along with a significant global investment bank with home markets in the UK and US, it meant tough strategic decisions had to be made.)
By one measure, the Barclays private banking operation can start to claim success. It has hit its target to build a critical mass team, under a plan first announced last year and which has resulted in 100 hires globally. That takes the full private bank workforce up to around 1,500 people in the UK.
High-profile recruits in recent months include Bjorn Holderbeke, head of investments for Private Bank, MENA and who moved from ABN AMRO. UBS was tapped for Andre Portelli, head of strategic solutions group and private assets. Then Jean-Christophe Gerard became global head of investments, jumping from HSBC.
The total number of hires is understood include transfers of just a few people from Barclays Wealth. The private bank plans to keep up its own independent hiring momentum.
Priorities will be given to activities like investments and credit products. It is also looking to potentially add more people in the Middle East as it see an opportunities for further growth there as seen by the recent hire of Steve Klemme, who joined from UBS as head of the region.
So what about the private bank’s target client market? No benchmark has been disclosed but expectations are that the private bank would be looking for at least clients with £10 million upwards of free assets, along with a profile that would make them likely customers for a suit of investment banking-style products and services.
Word on the street is that the private bank in fact will go as low as the £5 million client, as long as the profile suits the type of personalised service it is offering although, with its holistic private banking approach, the usual client assets test is not vital.
In fact, when Barclays speaks to a new client, it works with them to understand their needs to assess whether they will be best suited to being supported by the wealth team in the UK, within the ring fence or by the private bank. If a client’s needs change over time, it says it has a seamless process in place to transfer them between the ring fenced entity and the non-ring fenced entity.
Barclays also coordinates with clients to find the best solution to meet their banking, credit and investment needs, an ongoing process as it’s based on product or service needs.
Detailed core date for private banking and wealth is no longer reported for Barclays, and details are subsumed within investment and asset management. Overall, it has been disclosed Barclays’ total client assets grew five percent on an underlying basis to around £90 billion last year.
But, as noted, the private bank is concentrating on the fees and commissions it can earn from financial engineering services for business-orientated clients rather than just bulking up on raw assets.
This is where it plays its strongest card. As Ms Frank says, the investment in high-calibre staff and coordination with other parts of the group “ensures that we are able to deliver tailored and relevant solutions that bring together the best of Barclays.”
Successful transactions of late include the development of a ruble-based overdraft facility for a client, special purpose vehicles for direct investing and for co-investing and facilitating a structured product transaction for a UHNW client with a family office.
It also collaborated with an investment bank to support a capital raising, in the form of an IPO public listing, for an existing private bank client.
The Barclays view is that being involved in early conversations means that the bank can help to shape the best possible client solution to a particular need. As it says, “we coordinate and deliver advice from a product, sector and country perspective.”
Have there been tensions between the private bank and Dena Brumpton’s Barclays Wealth, as rumoured by rivals? Barclays insists that during the ring-fence transfer scheme, any decisions to move business to the private bank were client-driven and based on their needs.
One potential flashpoint – sharing business within the domestic UK market – has been avoided, Barclays stresses.
Lisa Francis, chief executive of PB&OS, UK & Ireland and Andy Houston, UK head of wealth, wealth management, and their teams work closely together to ensure clients are provided with the solutions that best reflect their individual requirements.
Certainly, Ms Brumpton seems to have been unfazed by assertions that ring-fencing may have undermined some of her wealth businesses. Barclays Wealth had been experiencing “record levels” of client acquisitions, she told thewealthnet, in an interview last November.
The banker, who previously worked for Citigroup as chief operating office in the private bank, insists that the split under ring-fencing rules has been done the best way possible. She says that the approach was based around client choice and the “most suitable way to meet client needs.”
So, the jury must still be out on judging the ultimate success of this Barclays Star Trek-style wealth multi-verse. It may prove the case that the bank is embarking on an ‘infinity and beyond’ strategy and may well emerge with a defining business model for these highly-regulated times. What is sure, brave Barclays is aiming ‘to boldly go where none has gone before’, at least in ring-fencing terms.
So critics, watch out - Barclays has set its phasers to stun.