Barclays: can't win
Barclays share price has fallen by more than .
The value of its business has dropped by about £20bn in that period.
This is a business which investors believe is in some difficulties.
And who can blame them?
After all, its investment banking arm – – has been up to its neck in the business of turning smelly sub-prime loans into investments, collateralised debt obligations, that were supposed to smell of roses but turned out to be garbage after all.
But Barclays believes investors – especially short-selling hedge funds, who have been betting on a black hole emerging at Barclays – have got it plain wrong.
The bank’s annual results, the most eagerly awaited corporate health check of the year so far, describe a big international bank in reasonable shape.
And compared to its dumber-and-dumber international peers, of the US, of Switzerland and of France, it really doesn't look too bad at all.
Earnings are flat on a statutory basis and down a non-lethal 15% on its preferred "economic profit" measure.
Capital remains at adequate levels.
Some businesses, such as , are doing a bit better than might have been expected.
But there are quite a few buts.
First, its sub-prime related losses of £1.6bn are by no means life threatening, but can't be dismissed as trivial.
Second, the outlook for this business - as for all global banks with the bulk of their operations in the western economies - is rather worse than it was.
Third, Barclays retains billions in exposure to sub-prime, various forms of asset-backed securities and structure-finance products, monoline insurers, private-equity debt, or - to generalise - stuff that could yet turn bad.
And we had a timely warning today that even the biggest and most sophisticated banks can get their sums wrong, as has announced a £1.5bn reduction in the value of asset-backed, structured-finance positions.
The chilling bit of Credit Suisse's statement was that it had identified mismarkings and pricing errors by a small number of traders.
Or to put it another way, the people at the top of Credit Suisse didn't have a firm grip on what its brainbox traders were really up to.
It's that kind of failure which explains why investors have so little faith in any big and sophisticated bank right now.
And it goes some way to explain why Barclays' shares have actually fallen today - even though it defied the doom-mongers and raised its dividend by 10%, rather than doing what many feared, which was to raise new capital.
Its shares are yielding around 8%. And all that tells you is that the market still believes that the risk in owning the shares remains pretty high.
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A fourth "but"
As stated in Consolidated Balance Sheet: Near 70% explosion of Derivative Financial Instruments and approx. 25% growth in Loans and Advances to Customers.
Phew!
Like Peston's blogs a lot but this one seems to dwell too much in the land of wish fulfillment.
ie 'I have thought this one through and think Barclays is a basket case. Numbers dont bear me out .Therefore the numbers must be wrong.'
Is anyone anywhere airing the argument that there may be banks out there (not necessarily Barclays) which have business models with a different risk profile than the lemmings who have had to go to the sovereign wealth funds for a capital lifeline? Let's give some credit where it may be due.
At least Barclays hasn't got the task of sorting out the ABN debacle.
A quick look at Barclays' results shows the bread and butter UK banking business to be in poor shape. The business banking has shown no growth in profits, retail up 9%, so overall growth of 4%. It looks like investors will have to rely on the more esoteric business in Barcap for future growth. So why increase divi by 10% now? Is that an expensive effort at reassurance?
People at the top of these banks might not be able to even describe the financial derivatives their banks trade little only value them. All that many have worried about is the increase in profits with relatively low regard to risk and thus to substantiate yet another huge rise in remuneration and pension contributions.
Lets be fair- over the next several years provisions and sequential hits for the past and current higher risk business will have to be taken and maximum effort will be to divert any criticism of top chaps pay.
Preston,
To be honest we expected a huge loss and we have seen none of it. Sometimes makes me wonder if its your cynical remarks that actually make a not so weak financial sector look ape sheet.
Get a grip Preston the market is not as bad as it you make it seem. There is a fear in peoples hearts that it perhaps is but you just seem to compound that fear with your remarks than proove something seriously flawed.
Agreed its your blog but, Sheer baseless remarks do your homework before you post agin.
XXX
Sara
A fourth "but"
As stated in Consolidated Balance Sheet: Near 70% explosion in Derivative Financial Instruments and approx. 25% growth in Loans and Advances to Customers.
Phew!
Why on earth should anyone ever again trust a Bank. Clearly they knew lending to people who had little or low incomes and charging them higher rates of interest was at best, a disgraceful error of judgement, at worst pure plain greed and damn the borrowers. Lets see some board sackings. Now the chickens are coming home to roost, they are still hiding the full facts hoping all will come right in the end. Many like Lloyds TSB are increasing as many charges as possible (gold card up £2 a month). Treating their customers as cash cows to put their mistakes right. Just refuse to play the game. If charges go up, move banks.
It seems to me that there's a fundamental flaw in the banking system. If you make money from some dodgy dealing and you reach bonus day before the S hits then F then you're laughing.
The worst sanction is the sack - but no fear of being "struck off" from a future career in banking.
Are banks really too greedy to see that the problem/solution lies at the level of individual motivation and risk/reward.
A fourth "but"
As stated in Consolidated Balance Sheet: Near 70% explosion in Derivative Financial Instruments and approx. 25% growth in Loans and Advances to Customers.
Phew!
An article where you haven't mentioned Northern Rock, is it actually you!
Do the guarantees given to depositors in Northern Rock by the Government cover new deposits by eg Prudential in the form of an offshore bond. These are Corporate and not retail investments as well as being offshore.
I think we may not be getting the full facts from Barclays I think banks are witholding some nasty stuff that will eventually have to come out. They were all scrambling for a cut of the sub prime when it was out of control. The young traders have not been kept in check in persuit of the bonuses.
"And it goes some way to explaining why Barclays' shares have actually fallen today"....
Wrong again Robert...up 6% as I speak.
But then, why let facts get in the way of your daily diatribe against the UK banking sector. After all, good news won't get your face on the telly every night braying about the next disaster.
To quote your own particular brand of puerile journalese, your articles are "garbage" and are becoming increasingly "smelly"
Bob Diamond made sweeping statements on financial television this morning, following the publication of their results, stating that Barclays were fully aware of all of the credit risks and positions that they had on their balance sheet, and were happy with their valuations of these risks and positions.
I hope that this statement doesn't come back to haunt him, given CSFB's re-appearance in the news today following their mis-pricing of credit assets in the results announced last week.
Barclays share price down by 40% over the last 12 months "because some investors believe the Bank has some difficulties".
Nonsense. Barclays share price peaked during its failed attempt to aquire ABN. The highest share price reflected the potential take-over.
Thank goodness the market understands the position. Or is it that the ³ÉÈËÂÛ̳ are trying again to promote a run on a UK Bank??
Hang on Barclays share price down by 40 % because some investors think the bank might have some difficulties.
Nonsense. The share price peaked during the failed attempt to aquire ABN. An aquisition that was seen by some as an attractive way to "grow" Barclays.
Much of the reduction to the share price happened when Barclays pulled out of the deal and bears no relation to the "credit crunch". But hey do we expect proper reporting form the ³ÉÈËÂÛ̳ any longer?
I'd be interested to hear Robert's views on Credit Default Swaps and how the trillions of dollars related to them are reportedly at risk of going the same way as with the CDOs.
If this is the case then would other sectors suffer similarly to the banking sector has with the credit crunch.
Would these recent losses be dwarfed?
I am sure there is more bad news to come. Having in a past life worked for this bank and another international bank I had a close involvement with the provisioning processes. These are largely set at the top and then middle management has to provide a suitable audit trail. Having said that I think that the bad news related to sub-prime is largely in the market and price but what is not is the probable increase in corporate and personal defaults as the real economy slows. I see the Barclays share price and the UK economy going sideways for a number of years.
To my mind, ³ÉÈËÂÛ̳ always seem to try to say the worst about Co's - especially on T/v text. Today, they headline Barclay's loss but make scant mention of any good profits- unlike ITV pages.
Avove all, surely, this is the time to try to REMOVE 'Fear'! Yes, UK has problems (as most others) - but UK, still, has plenty of strong points. I see our primary problem as a Government that taxes too high and wastes all they collect, on red tape & stupid excess 'Managers' who cant perform - let alone silly Labour's 'targets'. I think our Banks
will do well, before long! (Not Rock!)
Anyone who actually read the results announcement would see that personal loan and credit card impairments were actually down year on year.
Judging by the muted price reaction the market clearly thinks there is a lot more bad nwes to come.
If it doesn't, the shares seems likely to rise given the current prospective dividend yield of 7.4%.
At a certain point the rising share price will certain spook the short selling hedge funds into covering their positions, and then it could get very, very interesting.
Fear and panic rather than reasoned analysis of the facts will continue to be the main drivers to the Barclays share price for most of the rest of year.
One of these days though this stock is going to see the mother of all bear squeezes and a massive price rise.
Given the current dividend yield a CFD position in these shares is self financing, so why not buy a few and hang on in for what promises to remain a very eventful ride. NOT FOR THE FAINT HEARTED THOUGH.
John Turner (#16, 17) I'm sorry sir but you are talking bolderdash.
The Barclays share price peeked at just under £8 a couple of months before the initial ABN announcement.
They subsequently fell on the news of the announcement (as you would expect with an acquiring company), and then have consistently fallen further, even after Barclays lost the ABN bid - so indicating the credit crunch impact as otherwise you would expect them to pick up after losing the bid.
You ask the ³ÉÈËÂÛ̳ to report properly, when perhaps you should research accurately yourself before (incorrectly) posting. Egg on your face sir, not the ³ÉÈËÂÛ̳.
Robert, we didn't bend the truth this much all those years ago cutting our teeth at WdeB!! Yesterday you said that HMG's £110bn liability in respect of "The Rock" amounted to £3,500 for every UK taxpayer. Tonight you talked about the Barclays/Credit Suisse write-offs and stated that the cumulative £100bn UK bank write down amounted to £10,000 per Uk pension contributor. A change in words and a massive change in statistics (we all know what to think of them!!). any comments on this discrepancy??
Anyway, glad so much has been happening since you arrived at the BEEB! Stay cool!
According to todays newspaper Barclays announce 1% drop in profits, dear me they only made 7.1 BILLION!!!!!
John A Turner the share price went down when they made the bid for ABN Amro as it increased the risk of owning the shares and kept falling due to the turmoil
Scamp ABN is a mess but that is why RBS bought it!!! ABN has a great global footprint it just needs running properly (which RBS will do) to unlock value
Guess what Bob - share price is up again today - actually went over 500p for a while against a falling market. How do you explain that then? Why the silence? Tell us you were talking horlicks yesterday.
Come on Robert,
We all know that you get paid to 'comment' about the market etc. but your blatant attacks on Barclays in particular, are more than a bit biased.
Please come clean and say why you seem to carry more than an everyday dislike for them and their management.
Whatever Varley has done to you personally, remember there are a lot of good, honest people working for him, who put in their requisite hours and more, to try and keep customers and shareholders happy.
They are the ones who deserve to be treated with a little respect, no matter how much you dislike Varley.
I used to like reading your columns, but over the last few months, I've found them to be more than a little nasty in parts instead of being objective, which they certainly are not.
It would be nice to see you and your colleagues, concentrating on what people can do positively, in a market as it is, rather than being such a gloom merchant, which is quite honestly, wearing a bit thin.
I am still troubled by Barclays' surprisingly good results.
Barclays Capital are known to have grown strongly on the back of the structured credit markets over the last few years. But they haven't solved the fundamental problem of poor sub prime families defaulting on their mortgages. So Barclays has apparently shifted the problems onto someone else somehow.
When questioned about the results, Bob Diamond stated:
"We have no risks we didn't know we had July/August last year. But that doesn't mean we don't have to manage those risks. We have divested ourselves of some of the risks and others we have hedged. "
So WHERE ARE THE BODIES BURIED Barclays?
Where they could, they have sold the bodies to grave diggers. However, given the deterioration in the markets, it is safe to assume that much remains that could possibly come back to haunt them... these bodies have presumably been sprinkled with CDS perfume to stop them smelling over the audited year end results.
They still have risks.
1.Being sued for misselling risky assets.
2.Counter party risk for all those CDS hedges.
3.The prices of the CDS hedges continues to rise and they have to renew their hedges - or even that other parties refuse to offer CDS's at any price.
They think they have been clever - but they have not solved the fundamental issues - merely hoped to have passed them on...but they may come back and bite them!
This doom and gloom reporting is getting terribly boring and on the verge of getting out of fashion. The big 5 UK banks are doing well and will do well. For a start do not compare them with former building socities turning banks.Secondly subprime hit is an old story and the hits have been taken by the Top 5 and are easily digested in the massive profits they are making. Its the yanks who have got everything wrong and begging the world for handouts. We the bristish are in top form, reporting healthy prifts and dividends. Norther Rock was a casualty of gross mismanagement and a complete failure of the Regulators and the Government. Its failure does not warrant an attack out of envy and jealosy on our key banks. Not only they will survive ,they will thrive and they will carry on bleeding their customers for every penny like they have been doing all this time. Mr preston, its about time you keep your dull misplaced views to yourself. They sound like a broken record and are simply wrong. Lloyds,Hbos, HSBC and RBS results will confirm this. And sad journalists like you will ramp on saying I dont believe it. Well tough. Get used to it.
The UK economy is in good health. The unemployment rate is low. I think the BOE was carried away and cut the interest rate. Unfortunately, this led to rise in inflation. I think the immediate priority must be to control rising prices of essential commodities. The BOE should(without any hesitation) INCREASE THE INTEREST RATE.
I am afraid the share price does represent how the bank is perceived. Barclays over the past 3 years has been porrly managed and has taken excessive risks which are not common knowledge. The retail branches are typical example of how to get it wrong, moral low, high staff turn around, low sales per ratio etc. The board is run by americans and we have seen what they do. Diamond is playing roulette with the banks security and Varley sits there like a puppet worrying about what his family think about him. This bank needs a new leader and a great leader, sadly the share price represents what investors think about the senior management of the company and how it is run.
I think it is lunacy that a company like this can be bought for less than seven times earnings. It is like the possibility of buying the real estate and getting the company thrown in for nothing.
I expect to make 30% on my investment within a year.
Business ethics is a key factor in the present banking / credit crunch situation. Details about the nature of sub - prime mortgage selling, will emerge and will reveal the lack banking ethics. An example of poor Barclays business ethics and practices, comes from a friend of mine, part time and self employed, in a tight financial situation, overdrawn, etc.. Sitting at home on a friday night, gets a call from Barclays, offering a loan of up to £ 15,000 with a decision in 15 minutes. The basis of the call was that this person (woman) has been a Barclays customer for 20 years. The recipient of the call, total ripped the Barclays caller, for the incredulity of the offer, stating her financial position was tenious at best. The Barclays caller then admitted that he did not even have sight of, or access to the recipients banking records, prior to offering the loan of up to £ 15,000.
Great sales and banking ethics for a huge international bank. They deserve all they get, for poor management.
Mr Peston hasn't definitely done his homework. He seems to fail to understand the whole concept of write-downs. This is the decline in mark-to-market asset value and does not necessarily correspond to deteriorating credit quality. It would be interested to know what his interest is in singling out one single bank, Barclays, out of the current market turmoil, when Barclays is the one which has been left relatively unscathed. Does he fail to know what risk management does (when it works?)
Heathrow must become a world class "hub" to support our economy in the global market place. Sorry but it is that is the kind of global nosense which has actually lead to the peak oil/ sorry credit crunch 2.0, which we are all experiencing... so many buildings built in the local "global-centric" region (world class buildings built in say Birmingham), so few taking them up.
I really like the way in general the press is using the expression "credit crunch" as if at some later date to expose the mess on politicians who supported sub-prime loans for minority groups in the states , rather than the real cause - energy costs causing people to default on loans.
I wish to promote the book "peak wood" describing the cons and tricks politicians used during the last great entropic watershed during the middle ages.. technologies changes, but political ploys (and those who benefit from it) don't it seems.
On some facts.. The new terminal two (Heathrow East Terminal) - with it's sale ploy of been Cardon Neutral, is designed to have the same people capacity as the current one, with all the loss of competitiveness of cramming operations (accept BA, which moves into T5) into Terminal one for a few YEARS. If you think the baggage handling in Terminal One is bad right now, wait till you see it when HET gets built.
This of course is only my own opinion...