Barclays severing ties with up to 7,000 clients to boost returns

Barclays is preparing to tell 7,000 clients to do more trading with the firm or find another bank, the latest move in an industry wide trend of winnowing down customer lists to the ones that produce significant profits.
 
The British bank launched a new computer system, called Flight Deck, this month that ranks every customer of its trading unit by the return they generate on the firm’s capital, allowing Barclays to prioritise its most lucrative relationships and jettison those that have become a drag. Since 2014, the bank has culled 17,000 clients as tougher capital rules make dealing with many smaller firms less profitable, and the new system has identified a further 7,000 that may need to go.

 
Global investment banks have been cutting ties with smaller clients and scrambling to capture a greater share of business from the world’s elite fund managers as new rules led the industry to rethink its traditional focus on revenue. Lenders from Citigroup to HSBC Holdings are instituting strictly tiered client lists, lavishing attention on the handful of money managers at the top while reducing the time spent with the least active players.
 

“We have the returns figures, so we can go and have those tough conversations with clients that don’t meet our hurdle rates,” Kashif Zafar, the London-based co-head of global distribution and co-head of macro products, said in an interview. “We’re not in the old-school business of doing big revenue with poor returns. That’s a failing strategy.” As a general rule, Barclays wants at least a 10 per cent return on capital from every customer, Zafar said. Those that don’t currently meet the threshold will be given the option to do more business with the bank to get there; if they can’t or won’t, they’ll have to leave in what the bank terms a managed transition.

 
Barclays is embarking on its second round of pruning as the industry follows suit. Deutsche Bank is scaling back coverage of about 3,400 customers in the markets business, a person familiar with the move said this month. Morgan Stanley ranks its most profitable European fixed-income customers in three groups: “supercore,” “core” and “base.” Citigroup’s top five hedge-fund clients form an elite group known as the “Focus Five,” according to people with knowledge of the list.
 
Although smaller clients may feel slighted, banks are in a tight spot. Eight years after the financial crisis, low profitability have led to shares of European banks trading at fractions of their book value. Lenders have built up capital buffers multiple times higher than before the crisis and are spending billions more a year on compliance, while rules have curbed the firms’ risk-taking and ability to make market bets.

 
“In my whole career, I’ve never seen banks genuinely get tough about optimising client relationships and exiting where they can’t generate adequate returns,” said Laurie Mayers, an associate managing director of banking at Moody’s Investors Service.