Barclays Layoff Thousands, Plans To Reduce Leverage

Jefferies analysts assign a Buy rating to Barclays PLC (NYSE:BCS) (LON:BARC) despite the bank reporting a drop in its fourth-quarter earnings.

Barclays Layoff Thousands, Plans To Reduce Leverage

Barclays PLC (NYSE:BCS) (LON:BARC) reported a drop in its fourth-quarter earnings amid rising costs and a decline in its investment banking business.

Barclays’ leverage reduction plan

Joseph Dickerson and team at Jefferies point out that in regard to the leverage plan, Barclays PLC (NYSE:BCS) (LON:BARC) has announced a net £60 billion of further exposure reduction by 2015 (from end 2013). This, when combined with the £141 billion reduction in leverage in H213, translates into a total leverage reduction from end H113 of £200 billion (compared with management’s prior plan of £65-80 billion).

As reported earlier, in September, Jefferies analysts predicted the asset reduction plan of Barclays, which was £65-80 billion, could be increased to £185-£200 billion.

Jefferies analysts point out in their report that Barclays PLC (NYSE:BCS) (LON:BARC)’s leverage reduction plan is in line with the analysts’ expectations, as is the forgone revenue estimate of £300 million in 2015.

The analysts point out that Barclays group has not changed its 2015 expense base target of £16.8 billion, which is in line with the analysts’ expectations, though this may be a source of slight controversy.

Decline in pre-tax profit

On Monday, Barclays PLC (NYSE:BCS) (LON:BARC) unveiled overall profit numbers in an unscheduled trading update. Its full-year pre-tax profit, adjusted for exceptional items, fell by a third in 2013, compared with the year before to £5.2 billion.

However, today the bank provided more details indicating full-year pre-tax profit at its investment bank declined 37% to £2.5 billion. The bank’s revenues from the core of the operation comprising fixed income, currencies, commodities fell 17% year-on-year, following a similar decline reported by its European rival, Deutsche Bank.

Summarizing the results, the Jefferies analysts point out Barclays Capital revenues of £2.15 billion for Q4 is 1% ahead of Street, while its FICC was up 12% QoQ and down by 16% year-on-year. The analysts point out Barclays’ FICC is better relative to peers, while equities and IB are light relative to peers.

The analysts point out Barclays PLC (NYSE:BCS) (LON:BARC)’ FY 13 dividend of 6.5 p was in line with consensus, while its dividend pay-out guidance of 40% to 50% remains unchanged with 40% projected for 2014.

Turning their focus on CET1 regulatory capital ratio, the Jefferies analysts point out that Barclays PLC (NYSE:BCS) (LON:BARC)’ fully loaded CET1 regulatory capital ratio at 9.3% is 20 bps light on their estimates. They point out that Barclays’ management have reiterated 10.5% 2015 go-to level and 11.5% to 12% by 2019. The analysts anticipate 11.6% and 12.1% in 2015 and 2016 respectively.



About the Author

Mani
Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports