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Barclays plc (NYSE:BCS) (LON:BARC) is a London-based global money center bank.[1] Barclays makes money by lending money to individuals and institutions at a rate above its cost to borrow. It also makes money by advising and running the investments of larger institutions. It has a strong presence in the U.K. retail and commercial banking industries, and has focused on expanding its operations to emerging markets such as India, China, and the Middle East. Barclays reported £31,440 million in Net Income for full year 2010[2]

Business Segments

Barclays is organized in two main divisions: Global Retail and Commercial Banking and Investment Banking and Investment Management, each with its own sub-divisions.

News Updates

Barclays has been moving increasingly towards spinning off its Private Equity arm. After the financial crisis, the company has looked to refocus on the core of its business model. This means removing many of its more peripheral operations. In addition, pending regulation on the relation between Private Equity and commercial banking could make its PE arm less profitable.[3]

Barclays and Lehman Brothers are in a legal dispute over the sale of Lehman's North American division to Barclays. Lehman claims that the relatively rushed deal allowed Barclays to receive an $11B windfall profit. Lehman's suit argues it is entitled to $1.1B of those $11B.[4]

Trends and Forces

Government Regulation

An increase in US Government regulation could have a substantial impact on the operations of Barclays as well as the rest of the financial industry.[5] All holding banks will be prevented from engaging in proprietary trading and in any trades where there is a "material conflict of interest". In addition, "material exposure to high-risk assets or high-risk trading strategies" will be banned. While the impact may be large, the true extent depends on the interpretation and implementation of the regulation.[6]

The Basel III rules will force banks to increase the amount of money they hold against liabilities. While the goal of the regulation is to prevent banks from becoming over leveraged, they may also prevent the banks from creating the same profit margins that they previously were able to attain.[7]

Other regulation may place limits on the extent to which banks may invest in hedge funds or in private equity funds. This is commonly referred to as the Volcker Rule.[8] In order to improve their returns, Barclays, like many of its peers, invests in organizations like hedge funds and private equity funds. These funds tend to have higher returns, but also tend to be higher risk. While the regulation aims to lower speculation and high risk investments, it may also prevent Barclays from achieving the returns it has historically gotten. Swaps, which are used by banks to offset their risk or hedge against potential outcomes, may also be regulated. This would prevent banks from taking certain positions because the risk would be too high without the possibility of a swap.[9] [10]

Furthermore, regulation imposing a fee to financial institutions that keep their money in the Federal Reserve would increase the cost of operation for Barclays.[11][12][13]

Benefit from low interest rates

Interest rates can be thought of as the cost of borrowing money. Though the impact of interest rates spans across the economy, businesses and lenders are particularly sensitive to fluctuations in interest rates. As the Federal Reserve cuts the interest rate at which it lends out money, banks are able to gain access to "cheaper" money. [14][15] Low rates can allow Barclays to borrow money with low interest and increase its profit margins, while the inverse is also true. 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.

Changes in Corporate Tax Law Helps Investment Banking Fees

Rising corporate income tax rates directly increase costs for taxes paid to the government, which decreases the amount of profits left for banks to fund investments and reinvest in operations. However, changes in tax law can also benefit banks. Newly proposed fiscal legislative reform for 2011, which will effectively increase the capital gains tax paid by private equity firms and other money managers from 15% to between 20% and 30%. This tax increase creates incentives for such firms to exit their profitable positions and move to launch initial public offerings (IPO) before the change in tax law takes effect in 2011. This is increase in IPO activity directly translates into an increase in fee for investment banks handling the private equity IPO deals.[16]


Barclays 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.[17]

Barclays' main competitors internationally include:

  • Citigroup (C) -- Citigroup offers similar banking products as BCS, and has lost money in five straight quarters.
  • Bank of America (BAC) -- BAC is a bank holding company that competes with BCS for U.S. consumers.
  • HSBC Holdings (HBC) -- London-based HBC is the top UK bank rival to BCS.
  • J P Morgan Chase (JPM) -- Like BAC, JPM also offers credit provision and investment banking products while competing with BCS for U.S. consumers.

External Links


  1. Barclay's 2008 Annual Report and Review
  2. Barclay's 2009 Annual Results Release
  3. Seeking Alpha "Barclays Looks Likely to Spin Off Private Equity Arm Soon" 25 March 2011
  4. Reuters "Lehman to appeal order validating Barclays sale" 29 July 2011
  5. The Washington Post "Financial regulation bill nears finish line with support from Snowe, Brown" 13 July 2010
  6. Market Watch "New regulations may cut big bank profit 13%, Goldman says" 28 June 2010 pg. 2
  7. The Huffington Post "Basel III Rules: Banks Given Until 2019 To Fully Comply With New Global Regulations" 9/13/10
  8. Business Insider "Morgan Stanley Will Take Huge Loss On FrontPoint Because It's Bleeding Money On Losses And Lobsters" 8/5/10
  9. Forbes 'Swaps Split Could Cost Banks $85 Billion In Capital'
  10. The Options Insider "Permissible Bank Derivatives Trading" 2010
  11. The Boston Globe "Brown will back financial overhaul" 13 July 2010
  12. Market Watch "New regulations may cut big bank profit 13%, Goldman says" 28 June 2010 pg. 1
  13. Financial Feed "Vague Business Tax Cuts for the New Tax Law" 12/27/10
  14. Bloomberg.com, US Rates and Funds
  15. Federal Reserve Board "Open Market Operations" 16 Dec 2008
  16. Huliq "US tax law changes in 2011 increase private equity deals" 18 Jan 2010
  17. Barclays PLC (BCS) - Morningstar
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