The move is likely to be followed by more savage cuts at other leading banks as experts predict a sharp downturn in the City with shrinking bonuses and dwindling trading activity as emerging markets grind to a standstill and the fall-out from the hedge fund crisis claims more victims. "It's going to be a bloodbath out there," one banking expert said yesterday.
Barclays is currently preparing its budgets for next year and each division of Barclays Capital has been told to re-assess its projections for head count, cost base and revenues. Departments with exposure to emerging markets will be scaled back although Barclays says the cuts will not be draconian as it is already a "lean organisation".
Barclays Capital employs 4,500 staff, of whom 3,000 are in London. However, it now seems certain that these numbers will be reduced after Barclays announced a pounds 250m provision for losses in Russia and a further $250m participation in the rescue of Long-Term Capital Management, the stricken US hedge fund whose losses have threatened a meltdown in global financial markets.
"We are looking at our businesses to check we have the right number of people for the changed circumstances," a spokesman said. "Every bank is doing the same thing."
Barclays' action follows a string of similar cut-backs at other banks as the downturn gathers pace. Last week both Banco Santander and West Deutsche Landesbank announced 300 redundancies at their investment banking operations. There are rumours that Merrill Lynch may be about to announce cuts as a result of the Russian crisis and over 300 City jobs have gone at Nikko Securities as a result of the merger of its investment banking activities with those of Salomon Smith Barney of the US. Daiwa Europe has also annnounced job losses.
Barclays dismissed suggestions that Barclays Capital may be put up for sale. The division includes the bank's treasury and syndicated loans divisions, which makes disposal unlikely. Barclays says its structured finance department is performing well and that the bank needs a capital markets division to meet corporate clients' needs.
Barclays denies suggestions that Barclays Capital will receive no fresh funds for up to a year. It is understood the division has more than enough capital but fewer opportunities to invest as emerging markets continue their downward spiral. However, capital usage will be reduced as money is channelled into more profitable areas. Instead of emerging markets Barclays will concentrate on European markets as they prepare for the introduction of the euro as well as investment in other Group of Seven Countries.
Barclays' action comes as new figures emerged over the weekend which suggest that Long Term Capital Management built a total market exposure of about $200bn. Banking regulators around the world are planning tough new rules to control lending to hedge funds. The Financial Services Authority has expressed concern that many banks had lent to LCTM without taking sufficient collateral.Reuse content