Here’s Why Barclays Has Drawn the Ire of Investors

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Source: http://www.flickr.com/photos/alwyn_ladell/

Source: http://www.flickr.com/photos/alwyn_ladell/

Barclays (NYSE:BCS) — like many other large banks — still bears the scars of the financial crisis; litigation and regulatory charge are ongoing, with the company announcing ahead of its release of fourth-quarter earnings 330 million pounds, or $541.89 million, in litigation costs and charges for the three-month period. It’s Chief Executive Officer Antony Jenkins — who has pushed to implement a “fundamentally different culture” than that created by his predecessor Bob Diamond — has downsized the size, structure, and workforce of the second largest bank by assets in the United Kingdom in an effort to rid its balance sheet of capital-hungry loan portfolios and limit derivatives and securities lending so as to be compliant with the global banking rules known as Basel III. In particular, alongside earnings, the bank announced plans to cut as many as 12,000 jobs, or about 8 percent of its staff, as part of the restructuring that began a year ago.

Upon taking office in August 2012 — amid the fallout that followed the bank’s Libor-rigging scandal — Jenkins committed to rebuilding investor and customer trust in the institution, a task he believes could take as many as ten years. Libor rigging cost Barclay’s former chief executive and chair their jobs, giving both investors and customers a reason to be concerned about its business culture. “It is about what you do, not what you say,” Jenkins told BBC’s Today radio program in December. “Until people start to perceive the change, Barclays will not begin rebuilding that trust.” He acknowledged that, “It’s desperately disappointing to still have these issues being uncovered,” but with Sunday’s news that massive amounts of customer data was stolen to be sold on to brokers, it will be hard for Jenkins to sell the idea that a fundamental change in corporate accountability has begun.

It was also not the best quarter for Barclays financially; investors were clued into that reality just a day before earnings were released. On Monday, the bank pre-announced its headline figures, and in line with that preview, the bank reported Tuesday that underlying pretax profit would total 5.2 billion pounds, or $8.52 billion, a figure lower than the 5.4 billion pounds expected by analysts and a 26 decrease from the 7 billion pounds earned in 2012. The problem is that costs have soared as Barclays has worked to reshape itself into a smaller, more competent bank. Still, net income rose to 540 million pounds, or $886.73 million, a massive recovery from the loss of 624 million pounds, or $1.02 billion, reported in the year-ago quarter. But adjusted return on average shareholders’ equity, a measure of profitability, did fall to 4.5 percent from 9 percent in the year-ago quarter.

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