Legal Provisions Drag Barclays’ Results For 2014 Into The Red

-4.90%
Downside
9.08
Market
8.63
Trefis
BCS: Barclays logo
BCS
Barclays

Barclays (NYSE:BCS) fared much worse than expected for the fourth quarter of 2014, as a mixed operating performance for the period was hit by settlement-related provisions and accounting charges in excess of £1.9 billion ($2.9 billion). [1] The U.K.-based banking giant set aside an additional £750 million ($1.15 billion) in Q4 to cover ongoing settlement talks over its role in manipulating forex rates – taking the total provisions for its forex settlements to £1.25 billion ($1.9 billion). The bank was also forced to add another £200 million ($300 million) in reserves for its PPI-related misgivings, and incurred a £935 million ($1.4 billion) accounting charge from a revaluation of its Education, Social Housing, and Local Authority (ESHLA) loan portfolio held as a part of its non-core division.

These heavy charges resulted in a pre-tax loss figure of £1.5 billion ($2.25 billion) for Barclays in Q4 2014, making it the worst-ever quarter in this regard. Interestingly, the bank has reported a net quarterly loss in six of the last twelve quarters – something that stands out in comparison to the fact that it did not incur a single quarterly loss over the 2007-2011 period. This indicates that the bank’s poor results over recent years have more to do with settlement costs arising from legacy conduct issues rather than from a weak performance by its diversified business model.

We maintain a $17.50 price estimate for the bank’s stock, which is about 10% ahead of the current market price.

Relevant Articles
  1. Barclays Stock Trailed S&P 500 By 23% In 2023, What Happens Next?
  2. Barclays Stock Is Undervalued
  3. Where Is Barclays Stock Headed?
  4. Barclays Stock Is Undervalued
  5. What To Expect From Barclays Stock?
  6. After Earnings Miss In Q2, Where Is Barclays Stock Headed?

See our full analysis for Barclays’ stock

Solid Personal and Corporate Banking Performance

Barclays’ revamped business model relies considerably on the profitability of its global personal and corporate banking business – especially since the bank has had to cut down on its investment banking business over recent years. Taking a more integrated approach to retail banking, corporate banking as well as wealth management operations, Barclays seeks to leverage its geographically diversified presence to increase cross-selling of financial services and products to clients. This strategy, combined with gradually improving economic conditions around the globe, helped the bank post a strong operating performance for its personal and corporate banking business in Q4 2014.

The division’s pre-tax income figure for the quarter were marred by more provisions for PPI redressals as well as by one-time costs linked to the Project Transform reorganization plan. However, adjusting for such items shows that Q4 2014 was one of the best quarters for the personal and corporate banking division since the economic downturn of 2008 in terms of adjusted pre-tax income. Adjusted pre-tax income for the division was £893 million ($1.4 billion) in Q4 2014 – 2% better than the figure for Q3 2014 and a good 46% better than in Q4 2013. Results for the quarter benefited from an increase in corporate revenues, a reduction in credit impairments as well as from lower operating costs.

Debt Trading Revenues Weigh On Investment Banking Results

Barclays reported total revenues of £1.66 billion ($2.55 billion) for the fourth quarter of 2014 – marginally lower than the figure for the previous quarter and 6.5% below that for the year-ago period. Incidentally, this makes Q4 2014 the worst quarter for the bank’s investment banking operations in terms of revenues since the economic downturn of 2008. The poor show can be traced back to the sharp declines in debt trading revenues. While all investment banks have reported lower debt trading revenues for the quarter, the reduction in Barclays’ figures are more prominent due to the bank’s decision to slash its fixed-income trading business over recent quarters. Total trading revenues (equity and debt combined) were just over £1 billion ($1.6 billion) for the quarter, with the equities trading desk contributing almost 42% of this figure.

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. Final Results, Barclays Earnings Releases, Mar 3 2015 []