Barclays PLC

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Barclays PLC

54 Lombard Street
London EC3P 3AH
United Kingdom
(01) 283-8989

Public Company
Incorporated: 1896 as Barclay & Company, Ltd.
Employees: 110,000
Assets: £87.79 billion (US$158.78 billion)
Stock Index: London New York Tokyo

Barclays PLC, a one bank holding company with an enormous network of domestic and international branches, has it origins in the 17th century. Although located in the heart of London’s commercial district, the bank became identified with the agricultural and fishing industries through mergers, an identification it retained through much of the 20th century. For years Barclays, steeped in tradition, has been Great Britain’s foremost banker.

Barclays takes it symbol, the spread eagle, from the Quaker goldsmithing and banking firm founded by John Freame in 1728. In 1736, James Barclay, Freame’s brother-in-law, became a partner in the Black Spread Eagle. When two more of Barclay’s relatives joined the firm—Silvanus Bevan in 1767 and John Henton Tritton in 1782—the banking firm took the name by which it would be known for more than a century: Barclays, Bevan & Tritton. While fledgling joint-stock banks outside London struggled to establish themselves in the late 18th and early 19th centuries, Barclays, Bevan & Tritton was still occupied with the well-established and highly lucrative commercial life of London.

A series of legislative changes completed in the late 19th century created a new banking climate that threatened the existence of private banks like Barclays. First, the Bank Charter Act of 1826 allowed banks with more than six partners to be formed only outside London. In 1833 the geographical restriction was removed. Stockholders of new joint-stock companies were granted limited liability for the first time in 1854. Finally, in 1879, existing joint-stock associations were allowed to convert to a limited-liability structure.

As a result of these legislative changes, provincial limited-liability joint-stock companies started picking off private banks. After lengthy negotiations, three of the largest Quaker-run banking firms—Barclays (which had become Barclays, Tritton, Ransom, Bouverie & Company after a merger in 1888), Jonathan Backhouse & Company, and Gurneys, Birkbeck, Barclay & Buxton—and 17 smaller Quaker-run banks agreed to merge and form a bank large enough to resist takeover attempts. Barclays took its modern form in 1896 when the 20 private banks merged to form Barclay and Company, Ltd., a joint-stock association with deposits totaling an impressive £26 million. This marked the beginning of Barclays’ tradition of service to farmers and fishermen.

Francis Augustus Bevan, grandson of Silvanus Bevan, served as the new bank’s first chairman for 20 years. The company’s structure and course, however, were directed for its first 40 years by Frederick Crauford Goodenough, as first secretary until 1917, and then as chairman after Bevan’s retirement until his own death in 1934. Goodenough was the only chairman recruited from outside the original founding families until 1987. Recruited from the Union Bank of London, Goodenough remained aloof from family controversies and quickly proved his merit.

Goodenough’s first task was to meld the constituent banks into a single enterprise. He took a decentralized approach that was to be Barclays’ hallmark for most of the 20th century. Each member bank was independently operated under the control of its own board of directors. Senior partners of the constituent banks were given a seat on the Barclays board. In this way, long-standing relationships between each member bank and its customers were maintained, and the new company took advantage of the knowledge and experience of its leaders.

At the same time, Goodenough initiated a series of mergers which eventually made Barclays one of the largest banks in Great Britain. In its first 20 years, Barclays acquired 17 private banks throughout England, including Woods and Company of Newcastle upon Tyne in 1897, Bolitho Bank in Cornwall, and United County Banks, its first joint-stock bank acquisition, in 1916. The bank’s merger with the London, Provincial and South Western Bank in 1918 made it one of the Big Five British banks. During this period, Barclays merged with 45 British banks and its deposit base grew to £328 million.

This era of banking amalgamations came to an end in 1919, when the Colwyn Committee recommended, and banking authorities unofficially adopted, limitations on previously unregulated bank mergers. The committee suggested that thenceforth the Bank of England and the treasury approve only those mergers that provided important new facilities to customers or secured significant territorial gains for larger banks. Mergers were no longer approved if they resulted in a significant overlap in the areas served by constituent banks without countervailing benefits to customers or if they would result in “undue prominence” for a larger bank. After the Colwyn Committee report, mergers were increasingly difficult to justify, and the consensus was that mergers among the Big Five would not be approved.

After Barclays’ expansionist phase ended, Goodenough turned his attention to international banking operations. Barclays’ first international venture took place in 1914 when it established its French subsidiary, Cox & Company. Goodenough had a vision of a network of Barclays banks spanning the globe to the greater glory of the British Empire. As early as 1916, he started preparations for worldwide banking by acquiring the shares of the Colonial Bank, established in 1836 to provide banking services in the West Indies and British Guiana. The Colonial Bank’s charter was extended by special legislation to British West Africa in 1916 and then worldwide in 1917.

Immediately after World War I, Goodenough began negotiations with the National Bank of South Africa Ltd. and the Anglo-Egyptian D.C.O., operating in the Mediterranean. Despite the opposition from the Bank of England, which feared Barclays would become overextended, Goodenough engineered the 1925 merger of the two banks with the Colonial to form Barclays Bank (Dominion, Colonial & Overseas), later renamed Barclays Bank (D.C.O.). Although Goodenough never realized his dream of establishing banks throughout the British Empire, for decades Barclays was the only British bank to combine domestic business with a widely dispersed international branch network.

A contemporary of Goodenough’s speculated that the chairman became interested in expanding Barclays’ international operations because domestic growth was very limited. Despite this stagnation and later the Depression, Goodenough’s plan did not result in a disastrous overextension of the bank’s assets.

Barclays survived the Depression relatively intact to take its place as a leading wartime financier. Goodenough died in 1934 and was replaced by William Favill Tuke, who was in turn replaced in 1936 by Edwin Fisher. Fisher saw Barclays through the boom years of World War II. When Fisher died in 1947, he was replaced by William Macnamara Goodenough.

In 1951, Anthony William Tuke, the son of William Favill Tuke, became chairman following William Goodenough’s retirement that year. A.W. Tuke was essentially conservative but encouraged innovations, even those he personally disliked, which were potentially beneficial to the bank. Under Tuke’s leadership, Barclays became Britain’s largest bank, surpassing the Midland Bank in the late 1950s. Barclays was also a leader in introducing new banking technology: Barclays was the first British bank to use a computer in its branch accounting, in 1959; introduced the world’s first automatic cash-dispensing machine; and started a plastic revolution in Britain by introducing the Barclaycard in 1966.

In the late 1960s and early 1970s, when most competitors were struggling to establish international operations, Barclays enjoyed an enormous headstart, since its operations in former British colonies in Africa and the Caribbean were well established. The economies of many of these countries, however, were precarious. To offset its high exposure in developing countries, Barclays decided to enter the U.S. market. It first established Barclays Bank of California in 1965, and then in 1971 formed Barclays Bank of New York. Together these two banks gave Barclays the unique advantage of having retail banking operations on both U.S. coasts. Another advantage Barclays enjoyed was an exemption from 1978 legislation barring foreign banks from operating branches in more than one state.

In 1967 British banking authorities clarified their position on domestic mergers. The National Board for Prices and Incomes stated that mergers would be allowed to rationalize existing networks and that further reduction in the number of independent banks would not be viewed as inherently anticompetitive. Barclays quickly took advantage of the change in policy by merging with the venerable Martins Bank, in November, 1968. Martins Bank began as the Bank of Liverpool in 1831 and had merged with more than 30 smaller banks by the time it was acquired by Barclays. The most important of these mergers was with Martin’s Bank of London, founded by Sir Thomas Gresham, chief financial adviser to Elizabeth I and founder of the Royal Exchange. The merger with Martins Bank, the sixth-largest in the country, brought Barclays more than 700 branches, mostly in northern England.

In 1973 A.W. Tuke was succeeded as chairman by Anthony Favill Tuke, William F. Tuke’s grandson. A. F. Tuke served until 1981, when he left Barclays to operate a British mining company. His tenure was most notable for Barclays’ expansion in North America. In May, 1974 Barclays Bank International acquired the First Westchester National Bank of New Rochelle, New York. In the late 1970s, Barclays opened a series of branches and agencies in major U.S. cities. By 1986, North American operations had extended to 37 states. In the early 1980s Barclays Bank International diversified into commercial Credit, acquiring the American Credit Corporation, renamed Barclays American Corporation (BAC), in May, 1980. Later that year BAC acquired 138 offices from subsidiaries of Beneficial Finance and the operations of Aetna Business Credit Inc.

In June, 1981 Timothy Bevan became chairman of Barclays and immediately, with the assistance of United Kingdom Chairman Deryk Weyer, set about restructuring domestic operations. The system of local control initiated by F. C. Goodenough had become outdated as the bank expanded and diversified. Senior managers’ responsibilities were not clearly defined, and, although technically higher in authority than regional bank directors, in practice the senior managers were subject to the regional officials’ control as board members. Moreover, the original structure of the company tended to produce dynasties. Weyer’s strategy was to establish three basic divisions to represent Barclays’ most important markets—the large corporate market, the middle market of small- to medium-sized businesses, and the traditional individual-customer and mass-consumer market. Bevan and Weyer moved cautiously, however, avoiding wholesale reorganization of the company so that the relationships of local managers with large customers were not disrupted.

Further changes in the structure of the company followed. Barclays had converted from a joint-stock bank to a public limited company in 1981, and it assumed its present name in 1984. In 1985 Barclays became a holding company and all of its assets were transferred, in exchange for stock, to its operating subsidiary, Barclays Bank International Ltd., which was simultaneously converted to a public limited company and renamed Barclays Bank PLC.

In 1986 Barclay’s acquired Visa’s traveler’s check operation, becoming the third-largest issuer in the world with 14% of the market. That same year, in preparation for the deregulation of the British securities market, Barclays Merchant Bank Ltd. de Zoete and Bevan and Wedd Durlacher Morduant & Company merged to form Barclays de Zoete Wedd, a new investment-banking enterprise.

Barclays and Chairman John Quintin, appointed May, 1987 faced a number of challenges in the late 1980s. Domestic banking, now a 3,000-branch network, has always been Barclays strength. The bank is likely to continue to lead Britain’s domestic banks but faces increasing competition. National Westminster Bank has edged out Barclays in assets. The building societies, by offering high interest on savings, have threatened the banks’ traditional deposit base. Finally, American and Japanese banks have entered the commercial-lending market and pose a threat to British banks. Barclays is fighting back with two formidable money-generating enterprises, Mercantile Credit and the Barclaycard, which generates about 20% of Barclays’ domestic profits. It also continues to rationalize its branches to better serve the three major banking-service markets. In addition, Barclays planned to spend more than £500 million on technological advances, including the introduction of the first electronic debit card in the United Kingdom.

Barclays’ future in international banking is less certain. It was dealt a number of setbacks in the late 1980s. In 1986 Barclays divested its 148-year-old, wholly owned South African subsidiary, Barclays National Bank (Barat) in response to a disastrous drop in the subsidiary’s earnings from 1984 to 1986 and to losses in the lucrative student market in Britain as Barclays’ presence in South Africa became more unpopular at home. Also, the steady deterioration of African economies poses a hazard because the bank’s African involvement is so heavy. Barclays has decreased its African investments where possible, but has had difficulties in removing profits and proceeds from Africa. In addition, Barclays’ Hong Kong and Italian operations both suffered large losses in the 1980s, and the performance of Barclays’ American operations has been consistently disappointing. In the early 1980s, Barclays expanded very rapidly and tried to build earnings quickly through an aggressive lending policy. As a result, branches picked up a large volume of low-quality loans. Bad-debt ratios were very high, costs have only recently come under control, and American operations only started to show a profit in the late 1980s (only 4% of Barclays’ profits were from U.S. operations, while 15% of the bank’s assets were invested there). As a result, Barclays began offering specialized services in the United States in an attempt to improve its position there. After years of trying to make it profitable, Barclays sold its California banking subsidiary in 1988.

Barclays’ investment-banking operations also show promise. Barclays De Zoete Wedd expanded its operations by purchasing 50% of Mears and Phillips, an Australian brokerage firm. Barclays also formed a new bank in Geneva, Barclays Bank S.A., to develop capital markets with Barclays De Zoete Wedd. The investment-banking division, however, has had problems. The division is far from integrated with the rest of Barclays’ operations, and is competing in an unstable, highly competitive market.

Barclays is widely regarded as the last bastion of traditional British banking. Perhaps its besetting weakness has been overreliance on the Barclays name and an unquestioning acceptance of tradition. Barclays’ challenge in the 1990s will be to adopt operating methods responsive to the current competitive environment.