After Barclays Restructuring, a Skeleton of Lehman

Antony Jenkins, chief executive officer of Barclays PLC.
Carl Court | AFP | Getty Images
Antony Jenkins, chief executive officer of Barclays PLC.

At Barclays, the investment bank—just a slightly smaller one—is here to stay.

Following months of mounting pressure from shareholders, Barclays CEO Antony Jenkins announced a broad restructuring plan on Tuesday that would cut 3,700 jobs across the board, more than half of which will come from the investment bank, Barclays Capital.

(Read More: Barclays to Axe at Least 3,700 Jobs in 2013

The move to downsize signals a 180-degree turn from the strategy of Jenkins' predecessor, Bob Diamond, ousted in July 2012 amid a rate-rigging scandal that rocked the bank's reputation. Diamond spent nearly 10 years, including his time as chief executive, on a quest to build the investment bank into a global powerhouse—a strategy that culminated in the 2008 coup of buying the United States assets of Lehman Brothers.

Jenkins is now in retreat.

"Over time, the investment bank will grow," Jenkins told analysts after presenting the strategic review. "But it will grow less fast … than other parts of the group."

Barclays Capital will scale back its operations significantly in continental Europe and Asia, regions where Diamond expanded aggressively.

The Lehman deal doubled Barclays' investment banking headcount: Some 10,000 Lehman alums transitioned to Barclays in early 2009, though a third being were laid off right away. In the next two years, Barclays would cut another 1,600 jobs, largely on the trading floor.

(Read More: Barclays Forced to Name Executives on Libor List.)

Add that to Tuesday's announcement that an additional 1,800 cuts are set to hit the investment bank, and it would appear that some 65 percent of the Lehman bodies would have left the building.

Instead, it seems it's the Lehman bodies they're keeping.

(Read More: Barclays Increases Mis-Selling Provisions.)

Earnings for the former Lehman unit reached $750 million last year, earnings that did not exist for Barclays before the 2008 deal. Advisory fees from mergers and underwriting – the businesses inherited from Lehman – have risen to a record 19 percent of Barclays Capital revenues, its highest point ever, even as activity stalls. (That's likely due to the cadre of rainmakers that stuck around: A fulcrum for the acquisition was that if 30 percent or more of the top bankers defected, Barclays could walk away.)

"The U.S. business for Barclays generates more revenues and profitability than the European business," observed one Barclays executive, not authorized to speak on the record. "Sometimes people wonder, 'Where would Barclays be, had it not done the Lehman transaction?'"

Barclays will exit four investment banking businesses overall, and will also significantly reduce assets under its fixed income, currencies, and commodities (FICC) platform. The other way Jenkins ensured analysts it would reach profitability in the investment bank: slashing compensation.

Compensation fell to 38 percent of revenues in 2012 from 42 percent a year earlier; it dropped 20 percent last year in the investment bank alone.

(Read More: Barclays CEO Won't Take a 2012 Bonus.)

Shares of Barclays' US-traded ADR rose more than 9 percent in intraday trading after the restructuring was announced.

Still, that didn't keep analysts from peppering Jenkins with questions about whether a future break-up was out of the question, either by his will or that of British regulators, who continue to grapple with the idea of "ringfencing" a bank's investment arm from the rest of its operations .

In answering, Jenkins offered yet another barb against Diamond's wild-west management style: "The combination of running [the investment bank] in the right way and delivering the right returns—I believe—is the best defense."

By CNBC's Kayla Tausche; Follow her on Twitter: @KaylaTausche