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Business Comment

Ben Chu: Barclays still has a a dangerous driver

Outlook Now, is the winter of our discontent with Barclays made glorious summer by Antony "the shredder" Jenkins? The former Barclaycard boss has wisely eschewed the disastrous public relations strategy employed by his predecessor Bob "the remorse needs to be over" Diamond. But it didn't really require an MBA in quantitative finance to work that one out, did it?

And what of the substance? Mr Jenkins is closing Barclays' corporate tax-dodging services department. There is to be no more speculation by the bank on food commodities. Bonuses will swallow a smaller share of total revenues. That's all positive. Those of us who have raged about the conduct of this anti-social bank should give credit when a new management steps tentatively in the right direction.

Yet don't get too excited. Barclays' balance sheet is still about the size of the British economy. If this sucker goes down, we are all still going to have to write out a mammoth cheque. And for all his comforting speeches about values, Mr Jenkins is still determined to drive above the speed limit.

Amid the deluge of warm words, the new boss slipped out that he will target an 11.5 per cent-plus return on equity in the coming years, up from the 7.8 per cent last year. Return on equity, as Andy Haldane of the Bank of England has pointed out for years, is a grotesquely inappropriate target for a bank. Global megabanks achieved spectacular double-digit returns on shareholders' funds in the boom years by leveraging themselves up to the rafters. But those returns were unadjusted for risk which came all at once in 2008, wiping out the gains of the go-go years. And this plunged the world into a financial crisis from which it has still not emerged.

If Mr Jenkins is serious about wanting to shred the Diamond legacy he will raise far more new equity capital than regulators require, sell off the casino investment banking arm and renounce his fixation on return on equity. He will tell the markets that though this might hurt Barclays' earning power in the short term, it will ultimately create a stronger and more valuable bank – for both shareholders and society.