We issued an updated research report on global banking giant Barclays PLC BCS on Jun 30, 2015.
Barclays’ ongoing restructuring and streamlining initiatives have started bearing fruits. Notably, during the first quarter of 2015, the company saw adjusted net income attributable to shareholders increasing 20% year over year. Additionally, it witnessed a 5% fall in expenses, and an improvement of cost-to-income ratio to 64% from 67% in the prior-year quarter.
Moreover, restructuring at the London-based bank is not expected to take a back seat anytime soon. After divesting its non-core Spanish operations in Jan 2015, Barclays disclosed plans to vend its U.S. Wealth Management unit to St. Louis-based Stifel Financial Corp SF in Jun 2015. The transaction is expected to close in mid-Nov 2015.
With similar deals in the pipeline, including an anticipated exit from the U.S. legacy bond market, Barclays is right on track to focus on more rewarding lines of business, and thereby, regain its profitability. However, in the absence of a significant turnaround in the prevalent low rate environment, core operating performance is unsatisfactory; as net interest income, net fee and commission and net trading income remain subdued. Also, weak core performance can significantly dampen the benefits of successful restructuring efforts.
Notably, Barclays reached two major settlements recently.
In Jun 2015, the company reached a $1.28 billion agreement with Lehman Brothers Holdings, concerning the aforementioned wealth management unit. It is expected to result in a pre-tax gain of $750 million during the second quarter of 2015.
Prior to that, the company reached a settlement of roughly $2.32 billion with regulators in the U.K. and U.S. over charges of manipulating the foreign currency market and the U.S. Dollar International Swaps and Derivatives Association Fix in May 2015.
Though the progress made on these issues indicate the bank’s commitment to settle pending issues and probes, we remain wary of several other underlying issues which continue to hamper the company’s performance.
Nevertheless, Barclays exhibits a strong capital position, which helps it to consistently enhance shareholder value through steady dividends. Notably, the company targets a dividend payout ratio in the range of 40–50% by 2016. Besides, it remains focused on reducing core expenses to £14.5 billion by 2016.
Currently, Barclays carries a Zacks Rank #3 (Hold).
Analysts hold neutral views about the company’s future performance. Over the past 30 days, the Zacks Consensus Estimate has remained stable for 2015 and 2016 at $1.71 and $1.91 per share, respectively.
Stocks Worth a Look
Investors interested in the space can consider UBS Group AG UBS and BBVA Banco Francés S.A. BFR. Both these stocks sport a Zacks Rank #1 (Strong Buy).
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