Salz Review - Wall Street Journal

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2012 167 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 147 169 169 155 180 191 342 339 388 424 360 395 405 236 263 347 582 658 840 1,019 1,095 1,158 1,629 35 Salz Review An Independent Review of Barclays’ Business Practices 4.29 Barclays’ assets have grown even faster than both revenues and profits at a CAGR of 12% between 1993 and 2012, 47 reaching more than £2 trillion in 2008 before falling to £1.5 trillion in 2012. The acquisition of a majority stake in Absa contributed to an increase of 80% in 2005. From 2008 onwards between 70% and 80% of Barclays’ assets were in the investment bank. Figure 4.4 – Barclays’ Assets by Business (1993-2012) £bn 2,500 2,000 Barclays Capital Other Business Units 2,053 1,500 1,228 1,379 1,564 1,490 1,490 1,000 500 166 162 169 186 232 219 255 316 357 403 443 538 924 997 416 1,075 0 Sources: Barclays Finance, Barclays annual reports 4.30 Barclays’ shareholder equity had been steadily rising between 1995 and 2007. Total shareholders’ equity was £32 billion in 2007 immediately before the financial crisis; it increased to £58 billion by 2009 and was £63 billion at the end of 2012. The bank’s regulatory capital has also increased (see Appendix H) with Barclays’ Core Tier 1 ratio increasing from 4.7% in 2007 to 10.9% in 2012 and its Tier 1 ratio increasing from 7.6% to 13.3% (see Appendix H). Separately, although retail and corporate deposits (customer accounts) funding has increased in value from £159 billion in 2000 to £386 billion in 2012, its share of Barclays total funding dropped from 50% in 2000 to 26% in 2005 and has fluctuated between 16% and 26% since. 47 The rate is 9% when adjusting for inflation.
1,132 1993 1994 1995 1996 1997 1998 2011 Salz Review An Independent Review of Barclays’ Business Practices 36 Figure 4.5 – Barclays’ Total Shareholders’ Equity and Total Liabilities (1993- 2012) 1999 2000 2001 2002 2003 2004 £bn 2,500 Total Shareholders’ Equity 2,000 Retail and corporate deposits Other liabilities 47 336 1,500 1,000 500 0 9 90 67 10 89 64 12 88 69 13 97 76 14 108 110 15 109 95 17 124 114 15 159 142 15 164 178 15 171 216 17 185 242 17 217 304 24 239 2005 661 27 257 2006 713 32 295 2007 900 2008 1,670 58 322 2009 998 62 346 2010 1,082 65 366 63 386 2012 1,042 Source: Barclays annual reports 4.31 The ratio of a bank’s share price to its book value per share indicates the value shareholders ascribe to the bank compared to the value of its net assets. If the ratio is below one, shareholders are applying a discount. For Barclays, the ratio at the end of 2011, for example, was 0.33, which was lower than major international banks with similar business mixes. 48 At the end of 2012 this had improved to 0.51, reflecting recent improvements in the rating of Barclays. 49 4.32 The growth in Barclays’ headcount, at a CAGR of 2% over 20 years, is significantly lower than the rate of growth in revenues, profits and assets. The distribution of staff is also different to the scale of the businesses, with a lower proportion in the investment bank (just under 20% of employees during 2012). In fact, employee numbers gradually reduced in the decade from 1993 to 2003 from 98,000 to 73,000 as automation and cost reduction programmes were implemented. Employee numbers then increased substantially in both 2005 and 2008 following the acquisitions of Absa and Lehman respectively. But headcount subsequently dropped, driven by the tougher economic environment. Employee numbers totalled almost 144,000 in 2012, of which 59,000 were in the UK, 11,000 in the US and 45,000 in Africa – i.e., 59% of employees are employed outside the UK (see Appendix G). 4.33 One consequence of the rapid growth and expansion into new activities has been the constantly changing shape of Barclays as a Group, which some interviewees suggested was often related to the dynamics of the senior team. Exhibit 2 illustrates the repeated reorganisation of the bank’s structure accompanied by frequent changes 48 For example, price-to-book ratio at the end of 2011 was 0.66 for Credit Suisse, 0.72 for UBS and 0.82 for HSBC. 49 See Appendix I.
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Salz Review - April 2013
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