Will Slimming Barclays’ Headcount Help it Shed Weight?

February 14th, 2011 by Trefis Team
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Barclays

Barclays (NYSE:BCS) is a London-based global bank that provides consumers, corporations, governments and institutions with a broad range of financial products and services. It has a strong presence in the U.K. retail and commercial banking industries, and has focused on expanding its operations to emerging markets such as India, China and the Middle East. It competes with other worldwide banking institutions and financial services group like Citigroup (NYSE:C), The Royal Bank of Scotland Group (NYSE:RBS), Bank of America (NYSE:BAC), UBS (NYSE:UBS) and JPMorgan Chase (NYSE:JPM).

Working too hard to improve profitability?

Recently Barclays announced a series of job cuts across various operating divisions in the UK. The company’s decision to close its financial planning arm [1] was closely followed by an announcement that Barclaycard’s back office roles will be transferred to India [2]. These announcements come after Barclays had already decided to cut about 200 jobs in its Barclays Capital division [3].

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Barclays has 140,000 employees on its payroll, spread across the world. Almost 25% of these employees are in the UK.

Consumer Banking operations will be impacted the most

The financial planning arm is a part of Barclays’ Consumer Banking division, and provides the banks’ customers face-to-face advice on planning their finances. Customers can access financial planning services at most of Barclays’ 1,674 branches spread across the United Kingdom.

The decision to close the arm was taken following an internal review by the company which indicated that the performance of the loss-making business would only get worse. The review noted that more and more bank customers are now buying financial products online, making the financial planning arm’s function unnecessary. Barclays will henceforth be selling its investment products to retail investors only through the internet. Barclays’ decision to discontinue the financial planning business will directly impact 1,000 employees.

So how exactly will this impact Barclays’ share price?

The decision would directly affect the operating margin of Barclays’ Consumer Banking division. Our analysis of Barclays shows that a one percent change in the Consumer Banking operating margin impacts our price estimate for Barclays by the same percentage amount.

We believe that the decision to discontinue financial planning services could increase the Consumer Banking division’s profitability from our current forecast of just under 24% by the end of our forecast period.

If this division can improve its profit margins by 10 percentage points in the coming years, this would translate to a 10% increase in our price estimate.

See our full analysis for Barclays

Notes:
  1. Banks’ advice arms under threat, Financial Times, Jan 28 2011 [↩]
  2. Barclays cuts 285 UK jobs transferring back office roles to India, Guardian News, Feb 2 2011 [↩]
  3. Barclays Said to Eliminate About 200 U.K. Jobs Following Review, Bloomberg Businessweek, Jan 12 2011 [↩]