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The share price of Barclays (LSE:BARC) fell 3.22% on the LSE today, closing at 254.30, dragging the nearly record-setting FTSE 100 index from its lofty heights of 02 March back to 6,889.13. The decline today was clearly attributable to two things: the release of the bank’s final results for the year ended 31 December 2014 and the continuing stigma of its tarnished past. Or, it could have been something that Antony Jenkins said.
I’m not about to go into the bank’s past failures. Everyone already knows what they are. I just want to remind readers of them, because they have some bearing on how things are written, said and understood.
Barclays’ Brutal 2014 Report
When I read year end reports, I want to see what comes first: verbiage, bullet points or a summary of the numbers period-on-period. The latter two typically indicate the news is so good that the CEO can’t wait for us to see it. Lengthy verbiage usually indicates a company is trying to create a rosy-colored lens in hopes that investors will read the numbers through it. These are often British banks.
Now that I have supplied explanatory verbiage, let’s cut to the chase. Adjusted profits were down 32% compared to 2013. Need I say more? There’s an entire report in which the bank explains why.
Barclays had previously committed to increasing return on equity of its investment bank division to more than 12%. With 2.7% ROE as of 31 December, Jenkins and his staff only need a 444% improvement. The question for investors is not if they can do that, but when.
Then there are the payments still outstanding for the failures of the past. It cost the bank £1.1 billion in 2014 to pay fines and recompense for its part in the PPI scandal. The bank is still under investigation for matters related to foreign exchange rigging. It has already set aside an additional £1.25 million for that and other investigations. That’s not the kind of head start most institutions want for the beginning of a new year.
Jenkins’ Bold Statement
Although Mr. Jenkins said that “resolving these [conduct] issues is an important part of our plan for Barclays and, although it may be difficult, I expect that we will make significant progress in this area in 2015,” he was also quite clear that “every business within the group has to deliver [the returns we want].”
I’m not saying that there is anything wrong with either statement, but I am saying that, in the world of business, it is a far more difficult thing to manage those polar opposites than simply saying it must be done. Managers at all levels know that they must produce in order to retain their jobs and receive bonuses. That system is, in part, what got UK banks in trouble in the first place, as those managers advocated various forms of fiscal misconduct to meet their goals. Jenkins is going to have to have a staff with a far better moral compass than his predecessors’ had in order to accomplish both objectives.
By the way, did I mention that the board approved a £1.1 million bonus for Mr. Jenkins? Go figure.
