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Barclays (BCS)Stock (Financial Services Industry, Foreign Money Center Banks Industry)
 As an international financial services firm, Barclays has been impacted by the 2008 global financial crisis and deteriorating conditions in credit markets. In the first nine months of 2008, Barclays wrote down the value of its subprime-related assets by over $4.1 billion,[2] taking a bite out of earnings growth. Additionally, a slowdown in the U.K. housing market has led to rough conditions in Barclays' home market, which accounted for 57% of the firm's profit in 2007.[3]
[edit] Business SegmentsBarclays is organized in two main divisions: Global Retail and Commercial Banking and Investment Banking and Investment Management, each with its own sub-divisions. [edit] Global Retail and Commercial Banking[edit] UK Retail Banking (17% of 2007 pre-tax income)The UK Retail Banking offers traditional banking services to individual and small business customers exclusively within the United Kingdom. Products offered include savings, checking, money market accounts, investment products, Woolrich branded mortgages, and general property and life insurance. 2007 pre-tax profit for the UK Retail Banking division increased 9% while costs remained steady; a portion of this increase is due to a UK mortgage market share increase to 4%.[4] [edit] Barclays Commercial Banking (18% of 2007 pre-tax income)The Barclays Commercial Banking segment caters to the financial needs of medium to large organizations within the UK. Some of the products and services Barclays offers to its Commercial Banking clients include business finance, specialist industry information and advice, online banking and savings, investment services, insurance, and mortgage origination and underwriting. Barclays Commercial Banking's pre-tax and net incomes remained flat from 2006-2007 after several years of double-digit growth.[5] [edit] Barclaycard (7% of 2007 pre-tax income)As the first credit card issued in the UK, the Barclaycard segment operates domestically, notably providing services to the UK government, as well as internationally. Barclaycard offers consumer loans and processes card payments for retailers and merchants, in addition to issuing credit and charge cards to customers. In response to deteriorating conditions in the credit markets, Barclaycard has taken measures to tighten lending criteria, resulting in a net decrease in new credit card account delinquencies. Also, Barclaycard began issuing Flexi-Rate, a credit card with an adjustable rate that reflects borrowers payment history. From 2006 to 2007, profits before tax increased 18% for the division, largely as a result of these new measures.[6] [edit] International Retail and Commercial Banking (13% of 2007 pre-tax income)The International Retail and Commercial Banking (IRCB) segment offers business banking services to Barclays' corporate customers outside the UK. This segment operates in Africa, Spain, Portugal, Italy, France, and the Middle East, providing services such as retail checking and savings accounts, mortgage origination and underwriting, industry specialist consultations, insurance, and other investment and advisory services. Pre-tax income for IRCB fell 23% in 2007 from 2006 as global economic conditions turned grim. Nonetheless, IRCB is expanding and opening new branches in Italy and Portugal.[7]  [edit] Investment Banking and Investment Management[edit] Barclays Capital (31% of 2007 pre-tax income)Barclays Capital (BarCap), the firm's investment banking segment, advises clients on transactions such as mergers, acquisitions, and initial public offerings, and offers debt and equity origination services. Within Europe, BarCap is the largest debt issuer, having more than doubled in size since 2003.[9] BarCap had a relatively small presence in the U.S. investment banking market until 2008, when it acquired Lehman Brothers' U.S. operations after Lehman filed for bankruptcy protection.[10] As part of the deal, Barclays got Lehman's Manhattan headquarters and about 10,000 employees, nearly tripling the size of its U.S. workforce. [edit] Barclays Global Investors (10% of 2007 pre-tax income)Barclays Global Investors (BGI) is the group's asset management branch, which manages investments for individual, institutional, and corporate clients. BGI is one of the largest asset managers in the world, with $2.1 trillion in assets under management at the end of 2007.[11] [edit] Barclays Wealth (4% of 2007 pre-tax income)Barclays Wealth provides affluent and high-net-worth individuals with private banking and investment management services. Though Barclays Wealth is the smallest of the group's divisions, with client assets of $266 billion as of year-end 2007,[12] it is growing rapidly; from 2005-2006 and 2006-2007, the division's pre-tax profit jumped 49% and 25%, respectively.[13]
[edit] Trends and Forces[edit] Global credit crunch still hurting Barclays' earnings In the first nine months of 2008, Barclays Capital wrote down the value of its debt- and credit-related holdings by over $4.1 billion.[15] In 2007 and 2008, the global market for collateralized debt obligations and mortgage-backed securities all but disappeared, forcing Barclays to hold these securities on its balance sheet and take losses as their market value fell. As of September 30, 2008, Barclays Capital still had over $6 billion and $22 billion of CDOs and commercial mortgages, respectively, on its balance sheet.[16] Further deterioration in the global credit markets would continue to have a negative impact on Barclays. [edit] Central banks cutting interest ratesIn response to worsening conditions in global credit markets and the threat of economic downturns, central banks across the globe have been slashing interest rates from 2007 into 2008. The U.S. Federal Reserve cut its target federal funds rate from 5.25% in August 2007 to 1% in October 2008,[17] while the Bank of England cut rates in the U.K. from 5.75% in December 2007 to 4.5% in October 2008.[18] These rate cuts are generally beneficial for the economy as a whole, as well as for deposit-taking banks like Barclays. The reason is that interest rates represent the cost of borrowing money, meaning that lower rates make it cheaper for people to take out loans and use other credit products offered by financial services firms. Additionally, as short-term interest rates fall faster than long-term rates, banks benefit from a more favorable yield curve; essentially, they pay short-term rates on customers' deposits and charge long-term rates on loans, making the combination of low short-term rates and relatively higher long-term rates very beneficial for their net interest income. [edit] Pre-tax income from emerging markets up 25% in 2007Emerging markets have been a strong source of growth for Barclays in recent years, with the International Retail and Commercial Banking divisions' pre-tax income from India, Africa, and the Middle East rising 25% in 2007.[19] Additionally, Barclays Capital established a partnership with the China Development Bank in July 2007, giving it access to the large-and-growing demand for commodities trading and other capital markets services in China. All told, the IRCB division had 13 million clients in 2007 across the world, letting Barclays take advantage of rapid development in emerging economies. [edit] CompetitionBarclays competes against both domestic and international money center banks, or banks that provide services from retail banking products like checking and savings accounts to asset management and investment banking services. Barclays is smaller than some of its competitors, though it is still the largest debt underwriter in Europe[20] and one of the largest asset managers in the world, with $2.7 trillion in assets under management at the end of 2007.[21] Barclays' main competitors internationally include:
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