Analysis Of Barclays Bank: History, Performance, And Future

History of the bank and overall performance of Barclays Bank

Discuss about the Analysis of Barclays Bank.

The Barclays Bank (BB) is an international bank which began as a small entity in London. Barclays Bank has been in operation for more than 325 years ago serving the financial sector until to date. The Bank has always been propelled by strong values alongside the eventual goal of assisting its clients as well as customers to accomplish their respective ambitions in the correct manner (Bank, 2005). The BB’s innovation story began in 1690 where John Freame together with Thomas Gould commenced trading as goldsmith bankers on Lombard Street, London. John’s son-in-law, James Barclay, in 1736 joined the business christening it “Barclays Bank” as currently known. Barclays Bank since then has been a leader in the innovation (Joslin, 2014).

The BB was originated in 1896. It has advanced as a British banking and trust business listed underneath the designation Barclay & Company. The BB acknowledged the name in 1917. The business associated with the Provincial and South Western Bank of London in 1918 thereby becoming one of the enormous United Kingdom banks. Barclays in 1981, became the primary ever global bank to file with Securities and Exchange Commission in Washington. Accordingly, the Bank augmented its long-lasting capital in the New York market.

The BB became listed in Tokyo and New York Stock Exchanges in 1986. The BB gave its international strategy to enlarge additional drift through the 1986’s establishment of the innovative investment banking operation called the “Barclays de Zoete Wedd (BZW). Barclays in 1995, brought San Francisco-oriented fund manager Wells Fargo Nikko Investment Advisers (Barclays Bank, 2014).).

The BB acquired Woolwich which was then a leading mortgage bank as well as ex-building society in 2000. This step increased BB’s geographical coverage as well as possible customer base in the year 2000. The BB together with the Canadian Imperial Bank of Commerce (CIBC) compound their respective retail, corporate as well as offshore banking operations to form the First Caribbean International Bank in 2001.BB also formed in the same year (2000) a strategic alliance with Legal & General to engage in life pensions trade as well as venture commodities throughout the United Kingdom.

The BB acquired a fifty percent stake in established Intelenet Global, business processing outsource supplier in 2004 from Housing Development Finance Corporation (HDFC) which was the housing finance’s innovator in India. The BB sold 43.70 percent of this acquired stake in First Caribbean International to CIBC in 2006. The BB further bought a website for financial purposes called Comparetheloan that offered modest loan quotations for the United Kingdom’s homeowners and non-homeowners in 2006.

Focus on simplification and restructuring

BB acquired the business of Goldfish credit card in 2008 from Discover Financial Services. The Bank purchased Expobank from Russia’s Petropavlovsk Finance. The BB was delisted in 2008 from the Tokyo Stock Exchange. The BB also acquired a palisade from Compagnie Maritime Belge (CMB) in 2008 (Cassis, 2015).). The Bank together with Goff Capital, Inc., in November 2009, managed to shape Crescent Real Estate Holding LLC to purchase Crescent Real Estate Equities Limited Partnership (Crescent) from the Morgan Stanley Real Estate Funding II. The Bank announced in January 2010 that it accomplished the purchase of Standard Life Bank Plc.

The BB has used the Balanced Scorecard throughout the organization and subsequently formed part of its framework through which its staff are assessed, with individual performance goals aligned to the 5Cs. In the 2016, there was a great improvement across many of its metrics, particularly our capital strengthening, as measured by the CET1 ratio, and with Colleague (Japan, 2015). The organization further requires additional work in particular areas together with ROE. The client and customer relationship metrics stayed steady as a firm performance in corporate banking, merged with enhancements in Barclay’s current accounts, was counterbalance by the influence of redesigning its wealth business as well as competitive challenges in Africa banking. The BB’s Client Franchise Rank stayed in puzzling market conditions (Nathanson & Cassano, 2012).

Within Colleague, the BB has perceived development in the colleague commitment as well as the gender-assortment in their leadership, with plentiful ingenuities to encourage equally as well as support their workforce proving successful. In BB’s Citizenship plan, ten out of eleven metrics on target shows that it is having a positive impact on the communities in which it operates, with lending to households the solely initiative to lose momentum primarily due to market as well as trading conditions (Williams, 2000).

The BB has made great progress in the simplification of Barclays over the past few years as it re-shapes its balance sheet, strengthening its capital base, as well as costs reduction (Narteh, & Owusu, 2011). The BB has undertaken this step to move even closer towards becoming a Group that can produce the returns deserved by the shareholders as well as it denotes significant progress. To complete BB’s restructuring in a reasonable timeframe, as well as deliver for the BB’s stakeholders that have been patient for a long time, BB should make certain definitive choices currently regarding the upcoming shape of the Company.

Future prospects

BB should decrease its Barclays Africa Group Limited’s interest subject to regulatory as well as approvals by shareholders to a non-regulatory and non- consolidated location in the years to come. It has, however, been hard for BB to make this decision since Barclays has operated in Africa for more than a hundred years. This makes BB to have certain excellent franchises on the Africa continent that have an inordinate administration team as well as devoted colleagues.

In summary the future of BB is considered to be bright. Both the Barclays UK as well as Barclays Corporate & International have now produced dual digit Returns on Tangible Equity. The BB remains monetarily strong, and shall be as sisterly businesses, as well as stockholders alongside debt stockholders in Barclays shall gain from the differentiated revenue rivulets they generate. These tactical arrangements that shall carry forth the  achievement of its rearrangement as well as the appearance of a more simple as well as very profitable Barclays than ever.   

The Barclays has completed decent progress in contradiction of the strategy apprise that was declared on 01-03-2016. This was the initial set of outcomes of BB as an intercontinental consumer, corporate as well as investment bank functioning under the BB’s fresh alignment of Barclays United Kingdom as Barclays Corporate & International, and these have shown that a Core business is performing well in this thought-provoking situation. The BB’s Core ROTE is 9.9 percent under which Barclays United Kingdom dispatched very inspiring 20.5% yield on the palpable equity. The BB management can perceive a precise growth chances, especially in its Consumer, Cards as well as Payment business, whereby the Bank wants to endure to venture.

The Corporate and Investment Bank’s performance remained comparatively hardy in a threatening quarter, however, there remains more that BB has to undertake to enhance revenues, and it remains attentive on the actions of management to accomplish this goal. The BB has continuously targeted the reduction of cost in the Group and hence has remained on track to accomplish its future direction for the Core business of 12.8b pound as well as its long-run objective of BB’s income to cost ratio underneath sixty percent.

The CET1 has ended the quarter at 11.3 percent, with a precise trail to accomplishment of BB’s end state target, and hence, it is expected that capital ratio will rise via the course of the 2017 (Barclays Bank, 2014).

The BB’s group’s return on average tangible shareholder’s equity (ROTE) of 3.8% (Q115:4.0%). The Core ROTE of 9.9% (Q115:7.1%). The BB attributable profit declined seven percent to 433 million dollars, leading in basic EPS of 2.7 p (Q115:2.9p). The Core attributable profit rose 53% to 950 million pounds, culminating in a basic EPS contribution of 5.8p (Q115:3.8p). The BB group profit before tax of 793 million pound (Q115:1057 million pound) reflected an eighteen percent rise in Core profit before tax to 1608 million pound, more than counterbalance by a rising Non-Core loss before tax of 815 million pound (Q115:310 million pound).

Evaluate performance of the Bank on key performance indicators using last 3 years data

Key performance indicators (KPIs) are the visual measures of an organization’s performance. Anchored on a given considered field, the KPI is intended to assist operators assess at a glance the current value as well as status of a given metric against a definite target. The KIP also gauges the performance of the value based on the Base measure definition against a Target value, defined by the measure or by the absolute value.

The profit before tax growth (PBT) remains a KPI of Barclays’ financial performance to the great percentage of the BB’s shareholders. The BB has witnessed its proceeds in 2016 rise by 92.0% to 11.6 billion pound in 2016. The numeral was increased by the sale of the BGI fund supervision limb to the United States firm BlackRock in 2008. Profits were 5.6 billion pound if the above was stripped out compared to 1.6 billion pound in the year 2015, even though the figure entailed brawny write-downs (Fraser et al 2012).

The sale of BGI culminated in a profit on disposal of 6.331 million pound as well as reserved 19.90% economic interest in the expanded BlackRock group. The BB profit before tax was 6,077 million pound, down fourteen percent on 2014.  Profit entailed the Gains on acquisition of 2,406 million pound, alongside 2,262 million linked to Lehman Brothers North American businesses. The profit on disposal relating to shut life pledge book of 326 million pound.

As reflected in the BBC Gains on Visa IPO as well as sales of shares in MasterCard of 291 million pounds Gross credit markets losses as well as impairment of 8,053 million pound. The Gains on individual credit of 1,663 million pounds. BB performed well during the 2014, despite the hard market conditions. Even though profit before tax fell one percent, profit before business disposal increase three percent (Matthews & Tuke, 2013).

The profitability ratio is another key performance indicator that is explained in this financial analysis of Barclays. As reflected in Telegraph in 2016, Barclays’s operating profit remained 22.91% which stayed highest in the past three years. Operating margin rose from 10.7% to 22.91%. Even though Barclays Interest income decreased by 24.18% to 21,236 million pound. Conversely, BB had decreased its Interest Expense to 9,318 million pound in 2016 compared to 16,541 million dollars in 2015. This was due to the customer having withdrawn substantial amounts from the bank accounts of BB. In 2016, Barclays paid 2, 712 million pounds to their respective customers as interests on deposits while in 2015, BB paid 6,697 million dollars (Irwin & Scott, 2010).

This implies that interest Expense gas declined higher above interest income. In 2015, operating margin stood at 10.7% that was lowermost in the past 3 years. The Operating Profit margin push downwards to 10.7% from 11.08% in 2014. This is due to operating expenses in Administration has hiked to 5,305 million pounds in 2015 but conversely income did not go up to this level.

Return on Capital Employed (ROCE) is another KPI discussed in this paper for the last three years. In 2016 Barclays’ ROCE declined from 7.84% to 12.82%.  This was because the non-cash expense of Impairment Charges as well as other Credit Provisions rose substantially in 2016 to 8, 071 million compared to 5,419 million pound in 2015.

Such Impairment emerges because of Barclays’ exposure to credit risk emerging from investments in debt securities as well as additional exposures emerging BB’s trading undertakings encompassing, non-equity exchange portfolio assets, derivatives and payment balances with the respective market counterparties as well as contrary repurchase loans.

This was also due to the fact that in 2016, Barclays’ capital rose to 58,478 million pound compared to 47,411 million pound in 2014. While the profit before tax has decreased to 4,585 million pound to 6, 077 million pound in 2015. In the year 2015, ROCE stood at 12.82% better than 2016, however, this was very poor compared to 21.79% in 2014. This was as a result of profit before tax going down 14% in 2015 compared to 2014.

The Impairment charges as well as additional credit provisions of 5,419 million pound rose 94% on the previous year. These charges entailed 1,763 million pound evolving from US sub-prime mortgages as well as additional credit market acquaintances. Additional wholesale impairment charges rose substantially as corporate credit circumstances twisted abruptly inferior in the depression of economy (Bank, 2014)

Some of the weaknesses have been noted throughout the discussion that impedes the ability of the bank to perform effectively. The first weaknesses noted is the diminishing performances in Africa (Kaplan & Norton, 2013). It was noted that Barclays is planning to stop its Africa’s presence. For example, the services offered Zimbabwe to individuals linked with Zanu PF have produced controversy as well as queries regarding Barclays’ ethical position whereby investors are increasingly interested in ethics (Kaplan & Norton, 2013). To solve this problem, BB should have its bank branches well centralized in the respective economy where it operates like those of RBS and NatWest. This will boost its attraction to customers and thus better performance.

Another weakness noted regards the large bonuses given to the directors have attracted unnecessary attention from the commentators. Accordingly, it has been speculated that the reluctance of BB to take financing from the United Kingdom government is due to that it would end BB’s economy with respect to bonuses (Kaplan & Norton, 2013).

Another weakness noted relates to the plans to expand in Asia which were restricted when BB were outbid for the ABN Amiro in the year 2006, and alternative enlargement plans have had to embraced (Samy, Odemilin & Bampton, 2010). Another weakness is that BB did not plan to make dividend payments on its shares till the second half of 2009 which made BB less attractive to investors and still struggling to regain the investors (Samy, Odemilin & Bampton, 2010).

Another weakness is that the BB is in the midst of time of substantial restructuring. Also, whereas the investment banking is under the reduction in comparative significance, it raises group revenue volatility as well as confidence sensitivity relative to several peers (Kaplan & Norton, 2013). Another weakness relates to combination of potential litigation charges as well as other exceptional products casts a shadow over BB’s already below par earnings anticipations (Matthews & Tuke, 2013). Also, the negative outlook relating to the United Kingdom-oriented BB reflects standard and poor ratings services that BB can decrease its long-run contemporary credit rating.

The BB can maximize on its strengths and opportunities to speak to the above identified weaknesses (Samy, Odemilin & Bampton, 2010). For example, BB has a widespread worldwide presence, and this permits BB to spread risk as well as enjoy economies of scale. This will make the Barclays remain stable even amidst the challenges relating to the restructuring (Joslin, D2014).

Also, BB can use its well-established brand via sponsorship of Premier League football to boost the presence and performance in Africa. BB is also specifically linked with innovation having brought out the first ever world’s credit card in 1966 (Joslin, 2014). Moreover the bank has continued to develop such cards most lately the OnePulse card combing Oyster, cashless functions as well as credit functions for the London-oriented customers (Matthews & Tuke, 2013).

The BB should also use its severally opened new flagship branches alongside a refurbishment of programme which will help refocus on customer needs for a firm presence on the high street (Japan, 2015). There is a need for BB group leadership team to be more customer-centered so as to reduce the increasing number of complains particularly witnessed in BB’s United Kingdom retail banking which is poor customer service (Japan, 2015).

The bank should also use its strong competitive advantage that is witnessed in Africa whereby it remains among the leading three banks in several African nations, including Nigeria, Zambia, Ghana and Mauritius saves to BB’s merger with Absa Group Ltd in South Africa. Since BB has this sustained competitive advantage there is a need for the Bank to reconsider its decision to exit Africa and reinforce its presence in Africa (Irwin & Scott, 2010).

BB should also reduce the increased criticisms linked to poor earnings performance in 1^st quarter accelerated by irrational executive pay packages relating to BB’s capital, the investment banking unit whereby the pretax profit declined 33% in the first quarter (Fraser et al., 2012). The high rates of interest on loans as well as low rates of interest on deposits have also discouraged clients (Cassis, 2015). The bank should further reduce the interests on loans and boost interest on deposit accounts. This will attract more clients and hence improved sales of other banking products thereby creating a sustained competitive advantage for BB (Barclays Bank, 2014)).

Moreover, BB can solve this problem by enhancing its global diverse services that offer the group a broad array of cross-selling opportunities (Bank, 2014). The bank should also emphasize on telephone BB’s Wealth International offers secure, personal as well as private services, being the fast as well as friendly manner to speak to daily banking requests as opposed to other banks (Barclays Bank, 2014). This opportunity will give BB an added advantage thereby giving it a special attraction point.

Conclusion

The Barclays ROCE is falling constantly and this might culminate in investors becoming hesitant to provide upcoming capital. BB has unbalanced dividend payout ratio that illustrates that revenue production is greatly changing. In the year 2016, it has witnessed bursting profits that arose by 92 percent to 11.6 billion. BB should impose stringent rules in the credit provision services and evade undesirable promotional by creating administration suggested plus pay out scheme. BB should as well attempt and maximize the benefits of cheaper existing finance.

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