Business overhaul that began at Barclays PLC BCS under Antony P. Jenkins, the bank’s former chief executive officer (“CEO”), is continuing under its new CEO James E. Staley too. In a latest move to focus on its core operations, the London-based bank announced the sale of Barclays Risk Analytics and Index Solutions Ltd. (“BRAIS”) to Bloomberg for roughly £520 million (marking an end to the company’s two-year effort to sell the unit).
BRAIS had become part of Barclays’ operations when the latter acquired the indexing business in 2008, along with other parts of the collapsed US investment bank Lehman Brothers. The unit comprises Barclays’ benchmark indexes.
The deal also includes the sale of related intellectual property pertaining to the POINT portfolio analytics tool. Notably, the company will continue to operate POINT for 18 months after the closure of the deal with an aim to help clients’ transition to other providers, including Bloomberg’s port product.
Barclays’ quantitative investment strategy index business is not the part of the deal, while calculation and maintenance of its strategy indices will be out-sourced to Bloomberg. The transaction, expected to close by mid-2016, is subject to several conditions including anti-trust approval.
Upon completion, Barclays will record a pre-tax gain of £480 million. Additionally, the deal will lift the company’s common equity capital ratio by nearly 10 basis points. Notably, the deal is projected to have a negligible impact on the company’s risk-weighted assets, given the nature of BRAIS operation.
As per Stanley, “This transaction is further evidence of the good work we are doing in managing down our non-core assets so that shareholders can feel the full benefit of ownership of Barclays’ well-performing core businesses.”
What’s Next in Line?
Earlier this month, Barclays announced further shrinkage of continental European operations, with the sale of its Italian retail operations to Italy-based Mediobanca SpA’s retail bank, CheBanca! Moreover, the company’s French business is on the block for divestiture.
Notably, according to recent Financial Times report, Barclays is also reviewing its African operations for full or partial divestiture. The company CEO, along with the chairman John McFarlane, has started consulting regional experts regarding the African business.
The reasons being cited include depreciation of the rand against the British pound which is dragging the division’s performance, deteriorating African economic growth and the recent downgrades by credit rating agencies. Nevertheless, significant restructuring is unlikely, given the scope for future growth in emerging economies. Also, currently part of Barclays’ core operations, the Africa unit remains profitable.
We believe that Barclays, despite balancing the increasing litigations and settlements with cost-saving initiatives as well as restructuring efforts, needs to improve its revenues, costs and capital performance for boosting its financial performance, going forward.
Currently, Barclays carries a Zacks Rank #2 (Buy). Other foreign banks worth a look include Banco Macro S.A. BMA, Mizuho Financial Group, Inc. MFG and Grupo Financiero Galicia S.A. GGAL. All these stocks hold the same Zacks Rank as Barclays.
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