Barclays Profits Sink In Challenging Quarter, Stock Still Worth $15

February 14th, 2012 by Trefis Team
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Barclays (NYSE:BCS) reported performance figures for Q4 and full year 2011 on Friday, [1] seeing a decline in income numbers across all its operating divisions with investment banking taking the biggest hit. In fact, Barclays’ Africa retail banking unit was the only business that reported an improvement in income numbers over Q3 2011. The banking group’s adjusted quarterly earnings figure was the lowest in the last 3 years. Pre-tax income dipped 60% from the previous quarter, with investment banking operations adding a measly £267 million ($420 million) to the bottom-line. However it should be noted that Barclays’ Q3 2011 results benefited considerably from a £2.88 billion ($4.6 billion) gain on revaluation of its debt. Rival RBS Group (NYSE:RBS) is slated to come up with its results on the 23rd of this month.

Despite Barclays’ dismal overall performance, we have increased our price estimate for its stock from under $14 to just above $15, as the bank’s operating margins across its businesses have improved more than what we initially expected. Also, tighter compensation policies coupled with considerable expected job cuts should help strengthen margins further going forward.

See our full analysis for Barclays’ stock

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Barclays Capital Particularly Struggled

Revenues from Barclays’ investment banking operations declined by almost 20% over the previous quarter, largely as the bank’s fixed-income trading revenues dipped by a third. Equities trading didn’t fare much better, with a 10% decline in revenues. But this hardly comes as a surprise as the second half of 2011 was marked by extremely volatile market conditions in the wake of the deteriorating European debt situation.

Things were brighter on the advisory and underwriting front, though, which saw a 30% improvement in income quarter-on-quarter despite companies largely shying away from acquisitions and capital raising over the period.

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Notes:
  1. Barclays PLC Full Year Results Announcement 2011, Barclays Press Releases, Feb 10 2012 [↩]