Troubles at Barclays Prompt a Shake-Up—and Banker Exits

They replaced key leaders and laid out a strategy to become a top five player in as many lines of business as it can, if not investment banking overall. So far, the changes have done little to lift its stock and led to an exodus of senior bankers—more than 30 of the investment bank’s roughly 200 managing directors have left.

Fifteen years after its fire-sale purchase of Lehman Brothers’ core assets jump-started its investment-banking business, the British lender is still trying to find its footing.

A combination of a big U.K. retail bank with credit-card businesses on both sides of the Atlantic, Barclays has, unlike its British peers, maintained a hefty investment bank serving big investors and companies. For years, Barclays executives, many of them alumni from JPMorgan, have talked about fashioning the bank after its much larger U.S. rival.

Yet, unlike JPMorgan, Barclays’sshares trade at about 45% of book value, among the lowest ratios among its Wall Street rivals, reflecting a chasm between how the bank and investors value the lender. It holds billions of dollars of debt on its books tied to Elon Musk’s takeover of Twitter, and last year paid a hefty fine for a humiliating blunder in which it accidentally sold unregistered securities.

Barclays’s London-listed shares hover below where they were five years ago and slipped another 5% this week after the bank reported a drop in revenue. Investment-banking fees fell 15% and it cut its estimate on how much it would make from interest income this year. Some at Barclays say there is early evidence the changes are taking hold: The bank’s share of global investment-banking fees has moved from 3.1% last year to around 3.5% so far this year, according to Dealogic.

This account is based on conversations with people familiar with Barclays’s internal workings.

The rough patch began in earnest last year. Coming off a boom of deal-making activity during the pandemic, business was slowing. More concerning in the executive offices, Barclays’s chief executive, C.S. Venkatakrishnan, who goes by Venkat, announced in November that he had cancer.

By the end of the year, Barclays had suffered a roughly 50% drop in investment-banking revenue, in line with many of its U.S. peers but a significant blow given the corporate and investment bank typically provides over half the bank’s income.

British regulators, meanwhile, were completing a potentially damaging investigation into the personal ties between its ex-CEO Jes Staley and convicted sex offender Jeffrey Epstein.

Adding to unease in the investment bank’s ranks, Barclays had, like other banks, cut 2022 pay by around 40% for many managing directors, and even more for several at the top. In some cases, Barclays took the extreme step of attempting to renege on verbal promises it had made to high-profile hires guaranteeing compensation levels for the first several years.

While Venkatakrishnan underwent chemotherapy, Paul Compton, the head of the corporate- and investment-banking unit, was among his lieutenants tasked with helping to right the ship.

In January, Venkatakrishnan and Compton installed two new leaders of the investment bank, replacing co-heads John Miller and JF Astier. Several Barclays bankers had expected Marco Valla, an Italian who ran both Barclays’s technology, media and telecom group and its consumer-retail group, to be next in line to head the investment bank.

The bank instead gave a co-head role to an outsider, Cathal Deasy, a London-based Irishman. He was fleeing the troubles at Credit Suisse where he held a top investment-banking role and where he was known for his hands-on managerial style. The other co-head role went to Taylor Wright, who oversaw capital markets and had joined Barclays in 2019 after a long career at Morgan Stanley.

To aid the bank’s goal of doing more business both in the U.S. and Europe, Wright would be based in New York and Deasy in London. They were to work alongside Stephen Dainton and Adeel Khan, the co-heads of global markets, the other major unit of the corporate- and investment-banking unit.

Valla, who had arrived at Barclays through its Lehman Brothers acquisition, was soon being courted by multiple competitors.

The investment bank’s new leaders, meanwhile, were internally touting the importance of diversifying how the bank makes money by focusing on more “sticky," recurring revenues that can help balance out deal-making lulls.

Part of that goal involves becoming less reliant on one of Barclays’s specialties, leveraged finance—the business of making high-risk loans, especially to fund mergers and acquisitions—and earn more fees from more lucrative offerings such as helping hedge funds execute trades and large global corporate clients manage cash.

Deasy’s approach to making sure bankers aggressively pitch clients on the bank’s entire suite of services—including more closely monitoring their interactions with clients—has rankled some, particularly those from Lehman who were accustomed to autonomy.

Valla landed at UBS, which offered him a significant bump in pay to be its co-head of global banking. By June, over 10 other senior bankers—including several Lehman alums—left for UBS too. Miller and others left for Jefferies.

The bank succeeded in retaining a few bankers who got competing offers by offering them several times what they had previously earned. It has hired more than 20 managing directors this year, including Spyros Svoronos, an industrials banker from Credit Suisse, this week. Late last year, it hired Jim Rossman, an activism-defense specialist from Lazard.

Venkatakrishnan, who said in March that he had completed chemotherapy for non-Hodgkin lymphoma and that his cancer was in remission, has said some of the departures were a result of the bank changing leadership and strategy to adjust to the new period of higher inflation and interest rates.

Barclays has faced pressure over the years to follow the lead of U.K. peers that have shrunk their investment banks in favor of domestic retail banking and mortgages, which are more predictable for investors. Staley, the CEO from 2015 until his 2021 resignation, resisted those calls.

On Thursday, Venkatakrishnan acknowledged on an analyst call that the stock has underperformed relative to its Wall Street peers. He said the bank is focusing on expanding other parts of its business outside of the investment bank, such as retail and credit cards, to lift the stock price.

Still, the former JPMorgan Chase executive in June reiterated his commitment to the investment bank, which he said has diversified the bank’s earnings over the years: “Yes, we should be in investment banking, and we think we’re reasonably good at it."

Write to Cara Lombardo at cara.lombardo@wsj.com and Josh Mitchell at joshua.mitchell@wsj.com