JPM JP Morgan Chase and Co

By Margot Patrick 

LONDON-- Barclays PLC's plan to name Jes Staley as chief executive adds a new dimension to the lender's love-hate relationship with investment banking--and introduces fresh uncertainty over strategy.

It also comes as many of the biggest banks in Europe and the U.K. grapple with how to make money in investment banking under exacting regulation while staving off competition from U.S. rivals.

Barclays shares were down 2.2% Tuesday afternoon on the news that the former head of investment banking at J.P. Morgan Chase & Co. is lined up to become CEO, pending regulatory approval. Analysts said they are concerned that Mr. Staley's appointment could mean a lurch back toward investment banking after a series of stops and starts in scaling back the division under former CEO Antony Jenkins. If so, that could require more capital, analysts warned.

"While this removes one uncertainty regarding the future CEO, we see it raising more uncertainties on the outlook, which are likely to weigh on the shares," said James Chappell, an analyst at Berenberg. "Sadly, having hoped Barclays might emerge as a long-term winner in the sector, we fear it is returning to its bad old ways."

European banks have lagged behind their U.S. counterparts in adapting to the new landscape for investment banking, setting off a debate about whether Barclays and others should be better supported by policy makers to maintain larger investment banks that can compete with U.S. rivals.

U.K. and European banks were slower than their U.S. counterparts to restructure after the financial crisis to adapt to global banking rule changes. Barclays and other British banks were also weighed down by multibillion-pound bills over consumer-payment-protection insurance that hindered their ability to quickly shed unwanted assets.

The postcrisis political backlash against investment banking was stronger in Europe than in the U.S., leading to stringent rules around bankers' pay, and legislation in Britain to separate retail banking and investment banking through a process known as "ringfencing."

Later this week, the Bank of England will release guidance on how capital should be spread across banking groups' retail- and investment-banking arms under ringfencing, giving greater clarity for investors over how dividends will stream up to the holding-company level.

The investment bank at Barclays was at the heart of the bank's success in the 2000s, when it grew dramatically under then head Bob Diamond and became the main driver of profit. But the unit faltered under tougher regulations after the financial crisis, and Mr. Diamond left as group CEO amid the Libor-rigging scandal three years ago.

For three years under Mr. Jenkins, strategy at the investment bank was in flux. Then in July, shortly after Chairman John McFarlane joined the bank, Mr. Jenkins was ousted, because the bank said he didn't have the right skill set to move Barclays forward.

Mr. McFarlane, who is executive chairman until a new CEO is appointed, has spoken of Barclays growing again as an investment bank, and potentially even expanding through a merger. People familiar with the CEO selection process said Mr. McFarlane considered it crucial to bring someone in who had strong investment-banking experience and could help put to rest concerns around strategy in that area.

Late Tuesday, the bank issued a statement saying the process of appointing a new chief executive "has not yet concluded and Barclays will provide a further update once that is complete."

The current plan for the division, engineered by investment bank head Tom King and other senior staff such as Finance Director Tushar Morzaria, involves stripping out costs by cutting and outsourcing jobs, reducing low-returning assets and getting a better grip on capital allocation.

"They are taking a significant chunk of costs out but their strategy is to retain the profitable parts of the investment bank and over time it should enjoy something of a survivor's premium," said Ian Gordon, an analyst at Investec.

Analysts said Mr. Staley would likely put his own stamp on that strategy, and join a raft of new CEOs at rivals, including Deutsche Bank AG and Credit Suisse AG, that are bringing a fresh set of eyes to the challenges facing investment banks globally from tougher rules, changes in client activity and persistently low interest rates.

"His appointment will indicate a greater commitment to the [investment bank], but then Barclays' profitability problems are linked to the investment bank and not the traditional bank," Chintan Joshi, an analyst at Nomura, wrote in a note. "He needs to clearly indicate that the core investment bank will not form a bigger proportion of the group [risk-weighted assets] than under the current strategy as investors are unlikely take a growing investment bank positively."

Write to Margot Patrick at margot.patrick@wsj.com

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October 13, 2015 10:59 ET (14:59 GMT)

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