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Investment Overview for Barclays (NYSE:BCS)
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Below are key drivers of Barclays' value that present opportunities for upside or downside to the current Trefis price estimate for Barclays:
Sales & Trading
- Yield on Fixed-Income Trading Securities: Barclays' yield on fixed-income securities increased from around 2.5% in 2007-2008 to 6.9% in 2009, before declining to 5.2% by 2011. While we forecast the yield to remain around 5% over our forecast period, if it falls by even a single percentage point by the end of the Trefis forecast period, it would mean a downside of 8% to the Trefis price estimate.
- Sales & Trading Operating Margin: The Sales & Trading division's operating margin has been largely constant around 35% - with numbers affected adversely in 2008 and 2009 due to the global economic downturn, and the figure falling 2011 due to the deteriorating European debt situation. While we anticipate a decrease in margins due to the "ring-fencing" rule from the ICB, if Barclays cuts costs to improve margins to 40% by the end of the Trefis forecast period then this would represent an upside of 7% to the Trefis price estimate.
For additional details, select a driver above or select a division from the interactive Trefis split for Barclays at the top of the page.
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Barclays is a London-based global money center bank which provides consumers, corporations, governments and institutions with a broad range of financial products and services including consumer banking, credit cards, corporate and investment banking, securities brokerage and wealth management. It is number one in debt issuance in Europe. 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.
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Sales & Trading Has Higher Operating Margin than Consumer Banking
Barclays earned a net interest margin (NIM) of 5.2% by trading in fixed income securities, contributing close to $10.5 billion to net revenues in 2011. This was accompanied by good performance in the private wealth division due to strong relationships and network globally. In comparison, Barclays’s NIM on deposits and consumer loans was 3.1%. Barclays also earns higher operating margin of around 35% on its Fixed income & Equity sales and Trading compared to 15% in Consumer Banking business.
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British Government's Ratification of the ICB's recommendation could force drastic changes in Barclays' business model
The British government has confirmed its backing to the stringent recommendations for UK-based banks laid out by the ICB late in 2011. The legislation will be enforced by 2015, with Barclays facing several difficult decisions owing to the "ring-fencing" recommendation that seeks to separate retail and investment banking operations.
Central Banks Cut Interest Rates and Increase Lending
In response to worsening conditions in global credit markets and the threat of economic downturns, central banks across the globe have been slashing interest rates to entice banks to lend money. The U.S. Federal Reserve cut its target federal funds rate from 2% in July 2008 to 0.25% in July 2009 and has kept it at near-zero levels since then. The Bank of England have done the same.
Deposit-taking banks like Barclays stand to benefit from these rate cuts since interest rates represent the cost of borrowing money, meaning that lower rates make it cheaper for people to take out loans and use other credit products offered by financial services firms.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
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