Below are key drivers of Barclays' value that present opportunities for upside or downside to the current Trefis price estimate for Barclays:
For additional details, select a driver above or select a division from the interactive Trefis split for Barclays at the top of the page.
Barclays is a London-based global money center bank that 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 the leader in debt issuance in Europe. It has a strong presence in the U.K. retail and commercial banking industries. Over recent years it has refocused most of its efforts on providing diversified banking services in the U.K., the U.S., Germany, and southern Europe.
At the end of 2019, Barclays International reported around $175 billion in loans and over $270 billion in deposits for its Barclays International division. With net interest margins around 4%, the International division generated around $5 billion in interest revenues for the banking giant. Taken together with the related fee and trading incomes, the division brought in approximately two-thirds of Barclays' total revenues. The operating margin for the international division was around 28%, while the margin for the group was only 20% at the end of 2019. We believe that margins will improve to about 30% in the long run - making this division the single largest source of value for Barclays.
Barclays' card business reported an average of $5.8 billion in revenues over recent years. Also, the profit margin for the card business was around 27% in 2019. On the other hand, the bank's total trading revenues were $6.8 billion in 2019, although the figure is expected to improve over the next couple of years. While investment banking margins are expected to stabilize around 27% in the long run, card margins should reach 35% over the same time frame. This makes Barclaycard a more valuable division for Barclays compared to its sales & trading unit.
The U.K. formally left the European Union on 31 January 2020, but both sides are negotiating a trade agreement. If the terms of the agreement are not favorable, the country's banking industry is likely to witness a sharp reduction in activity due to a significant decline in economic activity. The possibility of a recession in the region only makes things worse for British banks like Barclays. In such a scenario, the Bank of England, which has maintained interest rates at near-zero levels since the economic downturn of 2008, may even consider negative interest rates - straining already weak net interest margin figures for the banks over the coming years. Investment banking activities at Barclays will also take a hit as Brexit (without an agreement) will hurt London's strength as a global financial hub.
With the British government backing the stringent recommendations for U.K.-based banks laid out by the ICB in late 2011, the legislation will be enforced over the coming years. Barclays is currently working on several difficult decisions owing to the "ring-fencing" recommendation that seeks to separate retail and investment banking operations.
With GDP and per capita income of emerging markets growing rapidly, there is an increasing demand for capital from companies in these markets to support the growing purchasing power of the people. Also, with the integration of these markets with the global economy, there is a shifting trend in these countries, from family-run businesses to corporations. As a result of these factors, an increasing number of companies in these markets are going public, leading to a growing demand for equity underwriting services. Additionally, consolidation across different sectors is driving demand for M&A advisory services.
The Volcker Rule restricts banks from making certain kinds of speculative investments if they are not on behalf of their customers. Barclays's proprietary trading desks have accounted for a significant percentage of its earnings in the pre-2008 era. The Volcker Rule is likely to result in a reduction in total trading revenues from the U.S. for the bank.