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Barclays to shrink controversial unit

Barclays is cutting its controversial tax unit after a wave of banking scandals.

Story highlights

  • Barclays will take the axe to its controversial tax structuring unit
  • UK lender seeks to clean up its image in the wake of a succession of scandals
  • Comes as global banks from Goldman Sachs to Deutsche Bank are reviewing their business
  • Barclays CEO: All activities would in future be "screened for reputational impact"

Barclays will take the axe to its controversial tax structuring unit, as the UK lender seeks to clean up its image in the wake of a succession of scandals.

The business, which at its peak may have generated as much as three-quarters of profits at Barclays' investment banking operation, will be shrunk dramatically as part of the bank's Project Transform under new chief executive, Antony Jenkins.

Barclays' actions comes as global banks from Goldman Sachs to Deutsche Bank are reviewing their business models in response to new regulations and government enforcement efforts.

"We have to take a fresh look to see if there are products and services in which ... we no longer deem it appropriate to do business, regardless of financial return," Rich Ricci, Barclays investment banking chief, said in an address to investors on Monday night.

"For example, elements of our tax advisory business have generated negative media and political attention." Mr Ricci also signalled a likely withdrawal from selling derivatives products to consumers and small business customers, following an industry-wide scandal over the mis-selling of interest rate hedging contracts to SMEs.

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Mr Jenkins reaffirmed Barclays' commitment to its investment bank more broadly, silencing predictions he would significantly reduce its size. But the new chief executive, formerly head of the group's retail banking operation, was clear that ethical behaviour would become a priority in future.

All activities would in future be "screened for reputational impact" as well as profitability, Mr Jenkins said. "Our ability to build a franchise over time depends on our reputation," he added, admitting the bank had made some "serious mistakes" in recent years.

This summer Barclays was fined £290m by global regulators over the attempted rigging of Libor benchmark borrowing rates, triggering the abrupt resignation of chairman Marcus Agius and chief executive Bob Diamond.

The tax business -- known as the "structured capital markets" unit -- has attracted unwelcome attention for at least three years. Though legal, the avoidance strategies it used on behalf of its clients were politically controversial.

Barclays' own group tax affairs were thrown into the spotlight twice in recent months, first over the use of a tax loophole that the Treasury retrospectively closed, then over a "tax equalisation" payment to Mr Diamond of about £6m.

Speaking to analysts and investors, Mr Jenkins also repeated an earlier promise to report back on his strategic plan -- including details of which businesses would be shrunk -- by the first quarter of next year. But he added: "You should not expect me to announce the break-up of the bank or an exit from whole business lines."

Barclays' board last month drafted in City grandee Sir David Walker as the bank's new chairman and elevated Mr Jenkins to chief executive three weeks later, in an effort to stabilise the group following Mr Agius and Mr Diamond's resignations.

There had been a widespread expectation that Mr Jenkins would shift Barclays' focus away from investment banking, which has traditionally generated two-thirds to three-quarters of group profits. However, bankers believe more of the rebalancing will come from the projected revival of the group's corporate banking unit and its troubled retail banking operations outside the UK.

In a question-and-answer session with analysts, Mr Jenkins would not be drawn on the extent of any change of direction, but he did talk about the group being more "balanced" with "lower risk".