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* Investment bank dominates too much - investor
* Jenkins seen cutting investment bank 10-20 pct -analyst
* Bank faces backlash over bonuses at AGM April 24
By Steve Slater
LONDON, April 15 (Reuters) - Barclays' ChiefExecutive Antony Jenkins is facing a high-wire act to overhaulthe firm's investment bank without undermining a division thatcontributes about half of group profits.
Jenkins, criticised by investors and politicians for raisingbonuses this year despite a big fall in earnings, has embarkedon the third review of the investment bank in as many years inresponse to pressure to cut costs and improve returns, which lagother parts of the business such as Barclaycard.
Analysts predict this might lead to a cut in the investmentbank's size of up to 20 percent. This would equate to about5,000 jobs going out of 26,000 and could strip out about 900million pounds in annual compensation costs.
"The expectation is for something like a 10 to 20 percentcut (in size)," Chintan Joshi, analyst at Nomura, said.
"In the long-term they will have to do more. On a four orfive year view, the investment bank could probably halve."
Despite his description of the investment bank as "anessential part" of Barclays, investors and analysts expectJenkins, a retail banker, to pull out of areas where the banklacks the scale to compete against Wall Street majors.
"We'd like it to be a smaller part of the bank overall,"said David Moss, director of European equities at F&CInvestments, which is one of the bank's top 40 shareholders.
"The problem at the moment is it dominates too much. Notonly from a capital and product point of view, but also from asentiment point of view ... everyone spends all their timefocusing on the investment bank and not saying what a greatbusiness Barclaycard is," Moss said.
Barclays' investment bank made about half of the bank'sprofits last year but it sucks up half of the group's capital.
Its costs rose to 75 percent of income from 65 percent in2012, and return on equity (RoE) sagged to 8.2 percent, belowBarclays' target of about 10.5 percent and well below the 18percent RoE for credit card arm Barclaycard.
With income falling, Jenkins is under pressure to showimprovement on cost cutting at first quarter results on April30, although the full investment bank review is not likely tocome until May or June, people familiar with the matter said.
It has been an uncomfortable 10 months for Jenkins, 52, dubbed "St. Antony" in the City of London for his pledges totackle the ills of banking and reform Barclays after a string ofscandals. He had to raise 5.8 billion pounds ($9.7 billion) frominvestors last year to bolster capital and remains underpressure to reduce the bank's leverage and assets.
A problem facing Jenkins is holding on to big revenueearning bankers while trying to cut costs. He is expected tocontinue to pay up to keep star performers but they will alsowant reassurance that this third review is the last.
Barclays lost a trio of senior U.S. bankers in August -James Ben, Peter Moses and David Baron who decamped toRothschild with resumes that included work on some of thebiggest U.S. consumer industry deals.
About 700 bankers are estimated to have left Barclays'investment bank in the United States last year. Turnover wasabout 50 percent higher there than normal, and more than 10percent of senior staff left, about double the usual attrition,people familiar with the matter said.
Some who stayed raised concerns about pay and its top-rankedU.S. oil and gas bankers team almost quit, sources said.
To keep staff on board and avoid what he described as a"death spiral", Jenkins raised 2013 bonuses for Barclays'investment bankers by 13 percent despite a 37 percent drop inprofits, provoking an outcry among investors, who are expectedto air their complaints at the annual shareholder meeting onApril 24.
Pension and Investment Research Consultants (Pirc) and theLocal Authority Pension Fund Forum (LAPFF), two leading advisorygroups, have urged shareholders to reject Barclays' pay plans.
Barclays on Tuesday sought to take the sting out of the rowby appointing Crawford Gillies to take over as chairman of itsremuneration committee to replace John Sunderland, its head forthe past two years, who has been criticised for failing torestrain payouts.
"Public opinion is clear that what Barclays has tried todo with bonuses epitomises an excessive bonus culture inbanking. We hope that with Sir John (Sunderland) moving on theywill reassess things so that this year's and future bonuses willbe in line with legitimate returns to shareholders," KieranQuinn, chairman of LAPFF, said.
THOUGHTFUL AND APPROPRIATE
Barclays is not alone in having to scale back investmentbanking. All banks, grappling with regulations to strengthenthem after the financial crisis, have to hold more capitalagainst some operations. This has made many business linesunprofitable for any bank outside the top five in that area.
Banks have also been hit by a slump in revenues for fixedincome, commodities and currencies as low volatility hurtstrading, and many bankers see that decline as permanent.
Barclays ranked fourth in this business last year with 10.2percent of revenues for the top dozen firms, according toReuters data, down from 11.1 percent in 2012 and extending aslide since 2008.
Its equities and advisory revenues have climbed in the lastthree years and it took more than 8 percent of the top 12 firms'revenues in both areas last year. Those areas are also less capital intensive, so returns should be higher.
Barclays is expected to stick with its areas of strength,including rates trading, where it was second behind JPMorgan last year, and foreign exchange, municipal finance,futures and options, M&A advisory and debt capital markets,where it ranked 4-6 globally, according to investment bankingconsultancy Coalition.
But analysts expect cuts in areas like credit trading,emerging markets, securitisation, structured credit and equityderivatives. It has already pulled back in commodities and it isconsidering selling its index business.
It is also likely to pull back harder from Asia, extending aretreat last year that left it largely focusing on serving U.S.and UK corporates there. But it is expected to continue buildingup in Africa, where it regards it has a competitive advantage.
Barclays declined to comment on the details of the review,but executives have signalled it will be significant.
"You do this once and only once, and it needs to bethoughtful, appropriate and correct," Finance Director TusharMorzaria, who joined from JPMorgan last year, said in February.($1 = 0.5976 British Pounds) (Additional reporting by Chris Vellacott. Editing by CarmelCrimmins and Jane Merriman)
