Barclays chairman says confident will solve ring-fencing problems

By Steve Slater

LONDON, Oct (HKSE: 3366-OL.HK - news) 22 (Reuters) - Barclays (LSE: BARC.L - news) should be able to overcome difficulties it is having in separating its domestic retail banking business from the rest of the bank under new UK rules designed to make banks safer, its chairman said on Thursday.

Britain's major banks have to separate, or "ring-fence", their domestic retail units by 2019, and sources have said Barclays has had the most trouble setting up its structure.

The bank is reported to be in talks with the regulator about a transitional arrangement to make its ring-fenced bank a subsidiary of the rest of the group, because it is concerned about the credit rating of the remaining non-ring fenced business. That is because it has a bigger investment bank than other UK banks.

"We're perfectly comfortable we can create a viable entity ... we may have to make a few adjustments but it's perfectly possible," Barclays Chairman John McFarlane said on Thursday.

"We've got to be very careful to make sure we don't create prudential issues in the remaining bank in creating a ring-fenced bank. That's the balance we're trying to find," he told reporters on the sidelines of a British Bankers' Association conference.

McFarlane said the bank had "a number of options" and had not made its final submission to the regulator yet "because this is a difficult issue".

Banks have until January to submit their plans to the regulator.

How to structure the bank is one of the big challenges facing Barclays' new chief executive, who has not yet been named. Sources have said that is likely to be former JPMorgan investment bank boss Jes Staley.

"It (Other OTC: ITGL - news) 's very unusual for an appointment to be played out fully in the media when we haven't made a decision ... the ball is not fully in our court," McFarlane said.

When asked if hiring a former U.S (Other OTC: UBGXF - news) . investment banker would send out a message that Barclays will rebuild its investment bank, McFarlane said: "If you're talking about Jes Staley, he is not an investment banker. He ran the investment bank, but he's a client guy."

Barclays, like many European banks, is reducing the size of its investment bank in an effort to increase its profitability, and McFarlane said he was confident Barclays can have a more focused business "that is capable of producing decent returns".

He said European investment banks could merge in the future to have the scale to compete with Wall Street's powerful firms.

"There may be an opportunity for individual investment banks to combine to try to create a more global platform."

"That's a theoretical point and I doubt Barclays would be a player in that, but on the other hand you should never rule anything out," McFarlane added. (Reporting by Steve Slater, editing by David Evans)