Barclays PLC's strategic focus on its corporate and investment bank is expected to continue following the departure of chief executive Jes Staley over his links to the late convicted sex offender Jeffrey Epstein.
Staley will be replaced by C.S. Venkatakrishnan, known as Venkat, head of Barclays' global markets division and its former chief risk officer. The bank's board said it had identified him as a potential successor to Staley over a year ago.
"Venkat's appointment, and the prompt action of the board, should ensure a good deal of continuity in the wake of this morning's news," said analysts at Goodbody in a note to investors.
Venkatakrishnan paid tribute to his predecessor, telling staff that Staley had taken over "in one of our darkest hours and devised and implemented a successful recovery strategy of outstanding vision…the strategy we have in place is the right one," according to a memo reported by the Financial Times.
Pretax profits at Barclays' corporate and investment bank rose 51% to £1.5 billion in the third quarter of this year, with fees from capital markets and M&A up 59% to £971 million. Barclays' overall third quarter pretax profit was £2 billion.
"We now have a position as one of the top six global investment banks and we're going to keep that," said Staley speaking to analysts while unveiling third-quarter results.
Staley's commitment to keeping Barclays as a full-service universal bank with a major corporate and investment banking arm saw him come under fire from activist investor Edward Bramson, who was for some time Barclays' biggest single investor through his Sherborne Investors Management LP vehicle before he sold his 6% stake earlier this year.
Bramson wanted Barclays to scale back its investment banking operations, focus on retail banking and return money to shareholders. He also raised the issue of Staley's links to Epstein, as well as Barclays' chairman Nigel Higgins' handling of the situation.
But the corporate and investment bank has been the stand-out performer for Barclays in the past two years, and Staley was the key architect of that strategy, Redburn analyst Fahed Kunwar said.
"If Staley had stepped down two years ago, I think the shares would have been up. At that point, Bramson was on the share register, there were open questions about whether pursuing the CIB strategy was the right approach and Staley was never that great at selling that story to investors," he said.
Kunwar said the bank had stressed that appointing Venkatakrishnan CEO was a clear sign that it regarded the existing strategy as absolutely correct. He noted that Staley's predecessor as CEO was Antony Jenkins, whose experience lay in retail banking, but his attempts to change the bank's focus to the retail side had not worked.
"The concerns over a strategic overhaul at the bank are definitely dampened by Venkat's appointment, but the question is: 'Will the execution be as good without Staley?'" he said.
Hargreaves Lansdown analyst Susannah Streeter agreed that Venkatakrishan's appointment indicates to an extent a continuation of Barclays' existing strategy and noted that Staley's departure highlights the increasing focus on governance issues.
"While other organizations focus on the environmental aspect of ESG this week under the shadow of COP26, this development is a reminder of how the G, as in governance, is increasingly important for companies and investors not to lose sight of," she said in a note to investors.
Shares of Barclays were down 1.4% at 199.48 pence apiece in early afternoon trading in London.