I was browsing through Barclays investor presentation and dug out a few numbers. I thought they were interesting because they paint a picture quite similar to what I've heard about many other of the large banks. From page 4, you can see that most activities have posted gigantic declines in profits from last year:
UK Retail Banking: - 61%
Barclays Commercial Bank: - 42%
Barclaycard: - 1%
GRCB –Western Europe: - 73%
GRCB – Emerging Markets: - 86%
GRCB – Absa: - 17%
Barclays Capital: + 100%
Barclays Global Investors: +4% (BGI was sold to BlackRock)
Barclays Wealth: - 59%
Head Office went from minus £ 460 mln to a positive £ 330 mln. This swing of £ 800 mln or so is a contribution to profits that is big time cost cutting: Head Office is a cost center, it's not supposed to make money. So this is non-recurring. A second comment: the only other material positive contribution comes from Barcap: about £ 1bn (up from £500 mln last year) contribution to a total of £ 3bn before tax profits. Barcap is the trading arm of Barclays, so these profits come from very risky activities: on page 47, economic profit from Barcap is slightly negative. Economic profit is profit minus the dollar cost of capital (which should be proportional to the riskiness of the project) needed to earn these profits. This is corporate finance 101: if you need to borrow $100 at a 10% interest rate for a business that is gonna bring $9 a year in profits, well it just doesn't make any sense to invest in that business.
Moving on to page 5: leverage is down from 28x to 20x. Improvement? Yes... but. It still means that a (marked-to-market) 5% drop in the value of the bank's assets would completely wipe out shareholders and render the bank technically insolvent. And this does not include, by definition, off-balance sheet activities. How likely is it that the bank's on-balance sheet assets will again be eventually marked down? From the appendix:
Page 9: loan loss rate (Commercial Bank): still climbing. Page 54: arrears rate (UK mortgages): still climbing. Page 55: net charge offs and deliquency rates (UK cards, US cards, UK unsecured customer loans): still climbing...
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