Barclays Has Opened Up a Major Opportunity for JPMorgan Chase and Bank of America

In an effort to simplify its operations, Barclays announced big changes to its structure, and this could result in more business to both Bank of America and JPMorgan Chase.

May 16, 2014 at 8:00AM

Last Thursday, British-based Barclays (NYSE:BCS)announced it would be slashing more than 19,000 of its 140,000 workers over the next three years in an effort to become less complex and "more balanced." By exiting this space, they may have opened up billions of dollars in potential for competitors Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM). 

The major change
The biggest changes would be coming to its investment banking arm, where it would cut more than 25% of its workforce. Barclays will instead principally focus on its core banking operations in Britain and Africa, its credit card business, and dabbling in investment banking.

CEO Anthony Jenkins noted simply:

This is a bold simplification of Barclays. In the future, Barclays will be leaner, stronger, much better balanced and well positioned to deliver lower volatility, higher returns and growth.

And while this will undoubtedly mean change to Barclays, it will also have a major impact on Bank of America and JPMorgan Chase.

The possible benefits and risks
A quarter of the nearly $40 billion in revenue Barclays brought in during 2013 came from its operations in the United States. While the firm didn't disclose the exact sources of it (whether it be credit card, retail, or investment banking), as it exits and simplifies its structure, this means there will undoubtedly be a flood of new possible business available to other banks.

Jenkins went on to say one of the reasons for Barclays shifting was that "The investment bank is too exposed to volatility in fixed-income, currencies and commodities, and the group is too exposed to volatility in the investment bank." 

It's critical to see the size and significance those firms mentioned above have in the fixed-income, currencies and commodities (FICC) landscape over the full year of 2013:

UnitRevenue (in billions)% of Total Revenue
Bank of America FICC $9.4 10.5%
JPMorgan Chase Fixed Income Markets $15.5 16%
Barclays Fixed Income, Currency and Commodities $7.6 19.8%

Source: Company Investor Relations.

In fact, both Bank of America and JPMorgan Chase each had more revenue from their FICC operations, which Barclays is exiting, than better-known investment banking competitor Goldman Sachs, with $8.6 billion.


As a result, if Bank of America and JPMorgan Chase can in turn capitalize on Barclays exiting the market by leveraging their existing strength to capture the positions Barclays previously held, it could mean billions for the banks themselves.

Yet conversely, one also has to wonder if JPMorgan Chase and Bank of America are exposing themselves to addition risk by having such major operations in the FICC landscape.

With most moves, it's too early to tell what the impact will be, but the reality is, the exit of Barclays could be a great thing for the banks if they are in turn able to capitalize and capture business that Barclays is now leaving behind.

Big banking's little $20.8 trillion secret
While Barclays is making an effort to simplify itself, it turns out it may be too little to late. That's because there's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banks. That's bad for them, but great for investors. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. To learn about about this company, click here to access our new special free report.

Patrick Morris owns shares of Bank of America. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jun 12, 2015 at 5:01PM

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