Mr Hughes said yesterday he was discussing a new role within the group, but well-placed insiders cast doubt on his future after a row over how economics and strategy should fit into the bank's new pan-European structure. It is understood that a group of his colleagues who had been offered jobs at rival Salomon Brothers said they would only stay at BZW on condition that Mr Hughes went.
Best known for the highly regarded BZW Equity-Gilt study he produces every year, Mr Hughes has been with the company for more than 20 years, since long before De Zoete & Bevan was acquired by Barclays 10 years ago.
His removal comes at a time of crisis for the company after a sharp fall in profits last year against a backdrop of rising returns from other investment banks. Since the New Year, 17 analysts have left BZW's equities operation although the firm claims it has replaced the leavers with 25 new recruits. Morale is reported to be at rock bottom amid widespread speculation that the firm's parent, Barclays, is seeking offers for the business.
At the heart of BZW's problems lies its move to Canary Wharf in London's Docklands from its present headquarters in the City. In a bid to maintain employees' loyalty during the staggered transfer, which has already seen some departments head east, a generous new system of sabatticals is understood to have been introduced.
Part of the blame for the high staff turnover in recent months has been a shift to a much more uncompromising performance culture. According to a spokesman: "There was a change of policy on bonuses this year. People who performed well got very good packages indeed. Others did not. There was a big differential this year."
Until recently Mr Hughes headed a separate economics and strategy function that was viewed with distrust by some as a distinct fiefdom alongside BZW's equities and bond market operations. The changes, which have left Mr Hughes in search of a role, mean the company's economists and strategists are now directly answerable to its global heads of equities and markets.
Mr Hughes is understood to be furious at the way in which his replacement as head of economics by Robert Barrie, another BZW economist, was announced on Thursday before discussions over his future had been completed. A spokesman denied the accusation made by more than one insider that BZW's equities operation had become a "shambles".
Bill Harrison, who was parachuted in from Flemings last year on a package worth pounds 6m over five years, faces an uphill struggle to justify BZW's place within Barclays. At the time of Barclays' full year results announcement in February, its chief executive, Martin Taylor, said BZW's 8 per cent return on capital would not be tolerated for long. There is increasing pressure from investors for Barclays to get out of investment banking altogether to concentrate on its less cyclical and highly profitable retail operations.
Analysts believe BZW will have to spend heavily to become a competitive force on the world stage. During 1996 its cost base rose by pounds 160m, three quarters of which was directly attributed to staff costs. The firm said pounds 45m was spent on "upgrading" - hiring and firing staff - during the period.Reuse content