Why Barclays’ Focus On Its Investment Banking Operations Looks Like The Right Way Forward

by Trefis Team
+7.13%
Upside
11.05
Market
11.84
Trefis
BCS
Barclays
Rate   |   votes   |   Share

Barclays (NYSE: BCS) delivered a better-than-expected performance in Q3 2019 earnings, with the British banking giant’s Investment Banking revenues surging 17% year-over-year to £2.6 billion thanks to upbeat FICC trading revenues. While the global investment banking industry struggled over the quarter due to reduced client activity, Barclays’ reported a strong performance in rates trading and securitized products – reinforcing the strength of its business model. Trefis highlights the importance of the Investment Banking Division for Barclays in an interactive dashboard, parts of which are summarized below. You can modify any of our key drivers to gauge the impact changes would have on Barclays’ valuation.

Why Is Investment Banking Division So Important To Barclays?

#1 Investment Banking Division Makes Up One-Third Of Barclays’ Total Revenues

  • Investment Banking is Barclays’ single-largest division – accounting for nearly 35% of the bank’s total revenues.
  • After declining over 2015-17, the division’s revenues increased 4.5% to settle above $9.6 billion in 2018
  • This growth was driven by strong performance across FICC and Equity trading desks.
  • Despite a challenging environment, we expect the division to continue to achieve steady revenue growth and touch $9.9 billion in revenues for FY 2019.

#2 Barclays’ Investment Banking Revenues Have Fared Better Than Revenues For Other Divisions

  • Barclays’ total revenue has declined at an average annual rate of 6% since 2015 – losing more than $5.6 billion in total revenues.
  • While revenues for the Investment Banking division have also declined, they have fallen at a slower rate than that of the consolidated bank – shedding $1.7 billion in revenues at an average annual rate of 5%.
  • Despite operating in a more volatile business, the IB division has fared better than the bank’s other divisions.
  • Low interest-rate environment, uncertainty over Brexit, and an overall weakness in the Eurozone have been responsible for the bank’s overall sluggish performance over recent years.

#3 The Division Has Been Operating At A Much Higher Margin

  • Investment Banking Division’s three-year average operating margin was 24.2%, well above Barclays’ total operating margin of 16.1%
  • Notably, the division has been operating at a similar margin to that of the bank’s less volatile and high-margin retail banking division, Barclays UK.

#4 Moreover, Barclays’ Investment Banking division is much more profitable than that for its European peers, and also contributes more to the bank’s top line

Additional details about how revenues and margins for the Investment Banking Division of Barclays, UBS and Deutsche Bank have trended over recent years is available in our interactive dashboard.

 

We expect Barclays’ EPS for full-year 2019 to be around £0.65 (with each U.S. ADR for the company representing 4 common shares). Using this figure with our estimated forward P/E ratio of 11.6x and a GBP-USD exchange rate of 1.3, this works out to a price estimate of $10 for Barclays’ stock.

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

More Trefis Data

Like our charts? Explore example interactive dashboards and create your own.

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!