Barclays has made major changes to its overall business, and the bank is beginning to show signs of improvement. However, there are some problems that still persist. The biggest change in Barclays since the credit crunch is the reduction in size of the investment banking division. During the Bob Diamond era, the bank depended heavily on revenue derived from investment banking and trading, but those days are over. In the first-half of the year the earnings at the investment banking unit witnessed a 46% drop, and the overall group's profits fell by 7% during the same period.
Barclays’ refocusing of its business towards the retail banking division is showing signs of progress as the personal banking unit and credit card business are expanding, but some of the problems associated with the old regime still haunt the company. In the third-quarter update the firm put aside £170 million for compensation for the mis-selling of PPI, bringing the total amount to £5 billion. A figure of £500 million was put aside for fines in relation to the rigging of the currency markets, and while fines for misconduct are still associated with the bank it will be difficult to regain investor confidence.
The bank trimmed nearly 8000 jobs in 2014 and hopes to reduce its headcount by an additional 11,000 by the end of 2016. The cost-cutting initiative is going according to plan and the amount of bad debt linked with property loans is declining, and this is what the market wants to see. At the end of last year Barclays comfortably passed the Bank of England stress test, and a continuation of its asset-stripping programme will improve its capital structure.
The consensus is for revenue of £25.91 billion and adjusted net profit of £3.29 billion when Barclays announces its full-year numbers. These estimates equate to a 3.3% drop in revenue and an 18.5% decline in adjusted net profit. The bank will also reveal its second-half numbers on the same date, and the market is expecting revenue of £12.78 billion. The first-half figures were released in July, and they were not well received. The revenue was £13.33 billion and the adjusted net profit was £2.51 billion, while traders were expecting £13.75 billion and £3.02 billion respectively.
Equity analysts are very bullish on Barclays. Out of the 35 recommendations, 26 are buys and nine are holds. The average target price is 295p, which is 13% above the current price.
Investment banks hold a moderately bullish outlook on HSBC, and out of the 42 ratings, 16 are buys, 18 are holds, and eight are sells. The average target price is £6.50, which is 12% above the current price.
The share price has been rising since mid-October and the initial target is in the 275-280p area. If that region is cleared to the upside, 300p will be in sight. The 250p mark is currently providing support and if this level is punctured the downside support at 220p will be brought into play. A move below this will put 200p on the radar.