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* Bank increases job cuts this year to 14,000
* Will cut 7,000 at investment bank
* Tom King to lead smaller investment bank
* To set up "bad bank" of 115 bln stg of unwanted assets
* All of European banking business up for sale
* Shares jump 6 pct (Adds background)
By Steve Slater
LONDON, May 8 (Reuters) - Britain's Barclays reinedin its ambitions to be a Wall Street powerhouse on Thursday andsignalled a return to its retail roots with a plan to hive offmuch of its investment bank and axe one in four jobs at thedivision.
Chief Executive Antony Jenkins, in his second strategicreview in as many years, will cut 19,000 jobs in the next threeyears, 7,000 of them at the investment bank, and park 400billion pounds of assets in a new "bad bank".
A slide in trading revenue due to investor uncertainty andtough post-crisis regulation combined with a string of seniorstaff departures and a row with shareholders over bonuses haveforced Jenkins to take a knife to the investment bank, built upunder predecessor Bob Diamond and once the firm's profit engine.
Jenkins said the recent halt in the trading boom was notjust a cyclical ebb but was partly permanent, as regulators havetightened the screws on large banks in the past 12 months,making some trading activities too costly to pursue.
"We will refocus and resize our investment bank to bringbalance to Barclays," he told analysts and investors. "Ascurrently constituted, it is an unacceptable drag."
Barclays will park some 90 billion euros worth ofrisk-weighted assets from the investment bank in the bad bank,including some commodities and emerging markets products andsome of its derivatives book.
The move echoes UBS, which in 2012 decided to exit theriskiest fixed-income trading areas and set up a non-coredivision to house around 90 billion Swiss francs of mainlyinvestment banking risk-weighted assets. Since the creation ofits in-house bad bank, UBS's shares have risen nearly 40percent.
Barclays' investment bank will be left with 120 billioneuros of risk-weighted assets and, while significantly smallerthan U.S. players such as JP Morgan, will still be thelargest investment bank in Europe with more assets than the"core" businesses of Deutsche Bank and Credit Suisse after they also streamlined their operations.
Barclays bought the flagship U.S. brokerage arm of LehmanBrothers when the investment bank collapsed in 2008. Althoughthere were some job losses during the integration into Barclays,the move brought thousands of former Lehman employees into theBarclays Capital business, many at a senior level within thecombined firm.
SHARES JUMP
Barclays shares were the top gainer in Britain's FTSE 100index and an index of European banking stocks,leaping more than 7 percent to a near three-month high of 261.20pence as investors digested the bank's pledge to boostshareholder returns with its more simplified business.
Barclays kept a targeted dividend pay-out ratio of 40 to 50percent of net profit and is aiming to deliver a return onequity (RoE) in its core business of over 12 percent. Its RoEwas just 4.5 percent last year.
Not all investors were impressed, however.
"When you're dealing with Barclays, it's very much a work inprogress," said Ed Shing, global equity portfolio manager at BCSAsset Management, who does not hold Barclays in his fund.
"I think they'll concentrate more on equities but theproblem is you'll see a lot of revenue shortfall in the otherareas as they go through the necessary pruning and withdrawalfrom the Bob Diamond empire. And I think that's a lot ofdisruption still in the pipe."
Despite Thursday's share jump, Barclays is the third worstperforming banking stock in Europe after HSBC andDeutsche Bank, down over 10 percent so far this year.
Barclays' investment bank will concentrate on its coremarkets of the United States and the UK and the top 1,000clients who generated more than three quarters of revenue lastyear.
The carve-up means the investment bank will account for nomore than 30 percent of Barclays' risk-weighted assets, downfrom half now. It gives greater prominence to Barclays' retailoperations in Britain, its Barclaycard credit card arm and itsAfrican business.
Jenkins is also parking all of Barclays' European retailbanking operations in Italy, France, Spain and Portugal, andsome corporate and Barclaycard assets in the bad bank. He saidparts of the European operations could be sold or floated.
Outside of the investment bank, around half of the job cutswill be from branches in UK, Europe and Africa with most of theremainder slashed from operations and IT.
CHALLENGE
Jenkins, the former head of Barclays' retail business, hasset out to turn the group around since taking over as CEO inAugust 2012 when investment banker Diamond was ousted followinga scandal over the rigging of benchmark interest rates.
But Jenkins' plan to drive the bank's returns above its costof capital - estimated at 11 percent - has been tripped up by agrim trading environment and uncertainty among staff about hisvision for the investment bank, which has prompted the departureof some senior employees.
Jenkins, who had vowed to overhaul Barclays' high-risk,high-reward culture, then got into hot water with investorsearlier this year when he raised bonuses for investment bankersdespite a fall in profits.
A 41 percent slide in trading in debt, currencies andcommodities in the first quarter, unveiled on Tuesday, putBarclays at the bottom of its peer group and laid bare thechallenge he faces.
Since the start of the year, the Federal Reserve has passedtougher rules for foreign banks such as Barclays operating inthe United States. The Bank of England has also said it wantsBritish banks to go beyond an international rule on leverage,requiring them to set aside more money to cover future potentialloses than foreign rivals.
Bad banks or non-core units have been deployed by a varietyof banks in the wake of the financial crisis as a way of drawinga clear line between past business and future direction. Theyhave also been used as a way of hiving off problematic loans, incountries such as Ireland, Spain and, more recently, Italy.
Eric Bommensath, currently co-head of Barclays' investmentbank, will run the bad bank. Tom King, Bommensath's co-head,will take over sole responsibility for the investment bank.
As a result of the latest strategic review, Barclays willincur a further 800 million pounds of costs on top of 2.7billion pounds already announced. (Additional reporting by Simon Jessop and Clare Hutchison;Writing by Carmel Crimmins; Editing by Tom Pfeiffer and PravinChar)
