BZW swapped one kind of uncertainty for another yesterday after Barclays, its parent, said it was inviting offers for a large part of the investment bank. Staff, who had learned to live with persistent rumours they were on the block, are now worrying about the identity of their new owner.
Bill Harrison, BZW's chief executive for little more than a year, resigned yesterday after the integrated investment bank he was expensively drafted in to run was dismembered.
Shares in Barclays tumbled after its chief executive Martin Taylor claimed he had not yet found a buyer for BZW, prompting fears that the bank's most valuable asset - its staff - might leave before a deal was finalised. Having soared over the last month by more than 20 per cent on speculation that a deal was imminent, they closed 49.5p lower yesterday at 1697.5p.
Mr Taylor said the decision to sell the equities and mergers and acquisitions advisory arms of BZW had been taken around two weeks ago, but staff were only informed officially at an early morning meeting at the investment bank's new headquarters in London's Docklands yesterday.
The disposal follows months of increasingly feverish speculation about the future of BZW. Mr Taylor has been under considerable pressure from investors to improve the returns from investment banking or withdraw.
Barclays said it would hold on to BZW's markets division and its debt- related restructuring, lending and private equity arms, which it will group together within the bank as Barclays Capital Group. Goldman Sachs has been appointed to advise on the sale of the remainder.
Mr Taylor defended his decision to announce the intention to sell before a buyer had been secured, saying it would provide BZW's staff with "clarity". He said the initial "shock, sadness and disappointment" of staff had quickly been replaced by an understanding that the move was inevitable, given the changing nature of the equities market.
Few in the City believed that Barclays would have announced the sale without having a potential bidder in the wings. Yesterday's move was seen as a ruse to flush out other possible buyers. One analyst said Barclays' claim not to have had private discussions with buyers was "ludicrous".
Germany's Commerzbank, ING of Holland, Switzerland's UBS and Paribas of France are seen as the front-runners in the auction. One rumour circulating yesterday suggested that Barclays already had four sealed bids.
Both BZW and its rival NatWest Markets have found themselves squeezed between the so-called bulge bracket of giant American investment banks, which have flourished on the back of an enormous domestic franchise, niche UK players such as Flemings, Schroders and Close Brothers, and the continental banks that are pouring millions of pounds of investment into London.
Mr Taylor said yesterday the world of investment banking was changing rapidly from a series of national brokerages to one dominated by big global players. He believed the investment needed to join that elite club was too large, and the returns too uncertain, to justify the risks involved.
Bill Harrison added: "The issue is the investment required to provide the primary and derivatives focus which elevates the scale and nature of the business in a very competitive market. The competition gradient is steepening all the time."
Mr Taylor described the operations to be sold as relatively small in the context of BZW, representing about pounds 200m of the firm's total income of nearly pounds 700m last year. He warned that redundancies, especially in back office functions which employ 3,500 out of a worldwide total of 7,500, were inevitable.
Bill Harrison said he was leaving BZW because he had come to run an integrated business and the decision to break up the firm was not consistent with that vision. He added, however, that he understood completely the competing demands on capital that Mr Taylor faced and respected the decision.
The decision by Barclays to throw in the towel in investment banking means this year comes close to matching the traumas of 1995 for the sector. That year saw the collapse of Barings, the sale of Warburgs to SBC and the purchase of Kleinwort Benson and Smith New Court by Dresdner Bank and Merrill Lynch respectively.
Mr Harrison caused shockwaves at BZW when he was hired following the death of former chief executive David Band in 1996 on a package worth pounds 6m over five years. A blunt operator, whose Birmingham accent set him apart from the City's smoother types, he is variously described as a "human dynamo, robust and rebellious" and less favourably as "Attila the Brum".
His management style has been described as "bouncing off the walls, inspiring staff and terrorising his enemies with his own brand of raw energy". Within months of arriving at BZW last September, he replaced almost all its senior staff, spending heavily on recruitment to replace a steady stream of defectors who were unhappy with the new more aggressive regime.
Having famously described time at home as "a wasted marketing opportunity", Mr Harrison is not expected to be out of a job for long. Martin Taylor confirmed that he would be receiving compensation but would not say how much.
The enormity of the task facing Mr Harrison when he arrived at BZW last year was underlined within months of his appointment by a slump in its profits during 1996 from pounds 289m to pounds 204m. Barclays' shares crashed following the announcement of its results as investors focused on the drag to the group's overall return on capital from investment banking. Martin Taylor described BZW's performance as inadequate, effectively putting the division on probation.
Like rival NatWest Markets, BZW has failed to compete with its enormously strong US rivals and been squeezed by the willingness of its continental peers to accept relatively low returns on equity. Because they make comparatively poor returns in their home markets, the returns from UK investment banking look relatively attractive.
The timing of the sale is ironic, coming just as BZW appeared to be heading in the right direction again. Interim results in August showed a decline in profits from pounds 148m to pounds 124m, but that included a pounds 20m derivatives hit, and compared well with the pounds 42m made in the second half of 1996.
Bob Diamond, chief executive of BZW's markets business, is staying with the bank to run Barclays Capital Group. Jonathan Davie, BZW's deputy chairman, is to chair the businesses that are to be sold. Steve Harker, the head of equities, who was initially reported to have resigned, is understood to be staying on.