Barclays to speed up restructure

The bank will announce its first-half profits on 29 July, and more of the same is to be expected.

Barclays logo
Source: Bloomberg

Barclays continues to make great strides to re-shape itself, but it is still being held back by mistakes made during the old regime. Updates from the bank over the past few years have been similar, typically we seen deleveraging of its investment banking arm, closure of a number of its retail branches, and a reduction of staff, which is all positive, but legal costs and PPI provisions take the shine off of the restructuring.

In 2014 the bank revealed a double-digit rise in adjusted earnings, but when you include exceptional items it swung to a 26% decline in profits. The first three months of 2015 got off to a similar start as last year, due to the PPI and legal provisions of £150 million and £800 million respectively. The so-called ‘one off’ charges don’t seem so one off when they make an appearance every quarter.

As I previously stated, Barclays reduced its headcount by 8000 in 2014, and there are plans for an extra 11,000 jobs to go by 2016. The Times speculate the bank will trim another 11,000 by 2017, which would take the total to 30,000.

Anthony Jenkins was ousted in early July, and the talk in the City was that he wasn’t implementing the new FCA guidelines fast enough — the new chairman, John McFarlane, is temporarily running the firm. Of all the UK banks, Barclays received the highest number of visits from the FCA. The London-headquartered bank was visited 186 times by the UK regulator in 2014, and that is more than the combined number of visits Royal Bank of Scotland and Lloyds received.

Mr Jenkins may have been shown the door, but he brought about a lot of structural changes to the bank. The stock rose by 55% in his three years of leadership, and further gains will be anticipated as the overhaul is accelerated.

When Barclays announces its first-half numbers, the market is expecting revenue of £12.86 billion. In the same update the bank will report its second-quarter numbers and the market is anticipating revenue of £6.34 billion and adjusted net income of £1.03 billion. Barclays will report its full-year figures in 2016, and the market is expecting revenue of £25.35 billion and adjusted net income of £3.99 billion, and these forecasts represent a 1.4% drop in revenue, and an 8% drop in adjusted net income.

Investment banks are bullish on Barclays, and out of the 31 ratings, 22 are buys, seven are holds, and two are sells. The average target price is 290p, which is 2.8% above the current price. Equity analysts are less bullish on HSBC, and out of the 41 recommendations, 13 are buys, 20 are holds, and 9 are sells. The average target price is $6.36, which is 8.3% above the current price.

Barclays' share price has been in an upward trend since July 2014, and 300p is the upside target. A move through will bring the resistance at 330p into play. Any pullbacks will bring the support at 272p into sight, and if that level is punctured the 260p will be the next support level. 

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.