The Execution of Barclays Bank PLC's Success Amidst the Global Economic Crisis - Case Study Example

Barclays Bank PLC Risk Management and Growth [Pick the "Our record income performance produced a sharp increase in underlying profitability in 2009. We have strengthened our financial position considerably over the years in the areas of capital, liquidity and leverage and are well positioned to manage further changes that may be required of us by our regulators. I think [our stakeholders] for their commitment and stamina in a tough and, at times hostile environment." John Farley, Group Chief Executive, Barclays, Spring 2010: Investors Presentation Post Q1 IMS. Execution of Barclays Bank PLC success amidst the global economic crisis promulgated by the 2008/09 'credit crunch' has been one of commitment to risk management reflected in the Combined Code of Corporate Governance (2008). Barclays' four centuries of growth and provision of services in retail banking such as current accounts, savings and investments, mortgages and other loans, credit cards and online banking were surprisingly responsive to the instability present within international financial investment and services corporations across the board (Hoovers 2010). The company also holds majority apportionment of Absa Group insurance (i.e. 59% stockholder). Representation of the Barclaycard in the Spring 2010: Investors Presentation Post Q1 IMS indicated that despite the retraction of revenues from revolving credit within this sector, Barclays saw 'strong income growth largely offset by increased impairment' and 'international diversification of business' with over 50% of the card's customers outside the UK (Barclays 2010). Credit market exposures reduced by 22BN, with protium loans at 7.9BN as of December 31, 2009. Dating to the 17th century, Barclays Bank is the flagship subsidiary of Barclays PLC financial services group, with retail and commercial operations in 50 countries throughout Africa, Europe and the Middle East. In 2010, Barclays acquired the Italian credit card business of Citibank International Bank; a deal that absorbed 197,000 credit card accounts and approximately 234 million ($320 million) worth of assets globally. Integration of the Citibank acquisition, and including business assets and employees, will be incorporated into the existing Barclays Western Europe division, with conversion of the credit card accounts to Barclaycards (Hoovers 2010). In 2008, the bank had made a more limited purchase of Goldfish, the UK credit card unit of Discover Financial Services for a sum of 46 million ($70 million). Emerging market expansion has also defied the climate of default within the international financial services sector, and the company has moved forward with strategic agreements made in Asia and Russia between 2007 and 2009. The agreements also include mergers that combine liability through sale of assets with retention of administration, as in the 2007 Barclays sale of its trust administration and custody business in Japan to Sumitomo Trust and Bank for some 21 million ($32 million). In 2008 the Bank acquired Russia's Expobank at 690 million ($750 million), and began negotiations to confirm agreement on 19.5% of New China Trust - just under the maximum 20% investment cap allowed to foreign companies. Finally, in 2009 the group moved to acquire a 99% stake in Bank Akita, Indonesia at 65 million ($100 million). The acquisition includes a rebranding of the company as 'Barclays Bank of Indonesia' which will further the corporation's interests in the region through integration with its global retail and commercial banking services administered by its emerging markets business division. While many people blame the 2008/09 'credit crunch' on a lack of risk management and unreliable financial reporting by banks, Barclays has shown significant leverage in planning and in critical change management decision making. Although much fiscal risk management looks to the audit process toward implementing strategic measures of mitigation, Barclays strategic model incorporates restructuring of the internal organizational environment according to assessment of external factors that threaten sustainability and growth of the company. Much of what has taken place since 2008 involves policies of increased disclosure and transparency. At an international level, those efforts have been focused on tackling corruption. From an organizational perspective, however, financial oversight and risk mitigation should and must evolve through best practices recommendations, and in conjunction with regulated disclosure and transparency responsibilities. According to the Financial Reporting Council, revision of the Combined Code on Corporate Governance (CCCG) n 2008 entailed reconfiguration of the composition of board decision making, and conduct of audit and risk by dedicated corporate committees toward improved corporate governance and performance. The following represents a summary overview of the overlap between the disclosure and transparency rules on audit, and the CCCG 2008: OVERLAP BETWEEN THE DISCLOSURE AND TRANSPARENCY RULES AND THE COMBINED CODE DISCLOSURE AND TRANSPARENCY RULES COMBINED CODE D.T.R 7.1.1 R Sets out minimum requirements on composition of the audit committee or equivalent body. Provision C.3.1 Sets out recommended composition of the audit committee. D.T.R 7.1.3 R Sets out minimum functions of the audit committee or equivalent body. Provision C.3.2 Sets out the recommended minimum terms of reference for the committee. D.T.R 7.1.5 R The composition and function of the audit committee or equivalent body must be disclosed in the annual report DTR 7.1.7 R states that compliance with Code provisions A.1.2, C.3.1, C.3.2 and C.3.3 will result in compliance with DTR 7.1.1 R to DTR 7.1.5 R. Provision A.1.2: The annual report should identify members of the board committees. Provision C.3.3 The annual report should describe the work of the audit committee. Further recommendations on the content of the audit committee report are set out in the Smith Guidance D.T.R 7.2.5 R The corporate governance statement must include a description of the main features of the company's internal control and risk management systems in relation to the financial reporting process. While this requirement differs from the requirement in the Combined Code, it is envisaged that both could be met by a single internal control statement. Provision C.2.1 The Board must report that a review of the effectiveness of the internal control system has been carried out. Further recommendations on the content of the internal control statement are set out in the Turnbull Guidance. DTR 7.2.7 R The corporate governance statement must include a description of the composition and operation of the administrative, management and supervisory bodies and their committees. DTR 7.2.8 R states that compliance with Code provisions A.1.1, A.1.2, A.4.6, B.2.1 and C.3.3 with result in compliance with DTR 7.2.7 R. This requirement overlaps with a number of different provisions of the Code: A.1.1: the annual report should include a statement of how the board operates. A.1.2: the annual report should identify members of the board and board committees. A.4.6: the annual report should describe the work of the nomination committee. B.2.1: a description of the work of the remuneration committee should be made available. [Note: in order to comply with DTR 7.2.7 R this information will need to be included in the corporate governance statement]. C.3.3: the annual report should describe the work of the audit committee. http://www.frc.org.uk/ Between 2007/08 and 2008/09 Barclays Bank PLC makes public in their annual reports and financial audit statements that the bank continues to comply to the highest caliber best practice recommendations, and including the conduct of audit and risk committees. The reliability of the company's reporting is consistent with standard business reporting sources (i.e. Hoovers 2010), and analysed to considerable effect in financial journals, and in political economy discussions within top news sources (i.e. The Economist). To this end, one may consider the competency by which bank's accounting audit and financial reports have been defined for investors and other stakeholders, as well as the implied reliability of the company's protocol of risk management and strategic approach to mitigation of unforeseen risks within the global financial pictures during the period. According to the Spring 2010 Q1 IMS, Risk Director, Robert Le Blanc, the Bank's restructuring plan in 2009 led to a reorganization of activities in three (3) of the group's business divisions: 1) Global Retail Banking (GRB); 2) Corporate and Investment Banking; and 3) Wealth Management. In addition, ABSA bancassurance saw some changes in administrative allocation and process. The changes were put into place to 'create a better alignment of customers and clients with the products and services offered by Barclays across the markets' (Barclays 2010). The GRB shift focuses on mass consumer, mass affluent and local business customers and is designed to address the division's four (4) fold objective through: 1) profit growth; 2) improved loan-to-deposit ratio; 3) international diversification; and 4) generation of net equity. Corporate and investment banking strategy has been brought into a shared management relationship with Barclays Capital toward convergence of those services for extended expertise. As capital and corporate customers often seek services in Barclay's Wealth division, the integration is toward provision of better service by way of compendium of the three investor resources. Reflection on signs of economic recovery by John Farley, Group Chief Executive to Barclays Bank PLC, noted that the key to Barclays' sustained wealth management and investment practices has been through the 'diversification' of both the business and the risk. The resultant picture of the company and its stakeholders has been one of increased wealth, accorded to strong performance in response to foresight in risk management. The outcomes indicate support of this claim. In 2009, Barclays audits reveal that even in the most tremulous case of total client assets, the Wealth division of the Bank grew 4% to over 150BN. While underlying profits declined 24% the company is currently accelerating investment in people and technology toward mitigation of some of the damage. According to the company's five year strategic business development plan, there is a projected additional 350M investment in this area that should lead to moderate growth expectations, and then accelerated growth post 2012. Improved liquidity for the group also advanced to 127BN. There was also good news on the mortgage lending front, with 10% growth to 87.9BN with a gross base of new lending at 14.2BN. Commercial banking also saw increase at 3% growth to a total of 63.3BN. All business loans in the UK provided by Barclays Corporate and Barclays Business, part of UK Retail Bankingare 'assessed for environmental risk by our Relationship and Credit Risk Teams, supported by Barclays Corporate Environmental Risk Management' (Barclays 2010). For example, real property assets are subject to Barclays SiteGuard assessment; an environmental screening tool that determines the commercial, environmental and use value of a land site. Emerging markets advanced at 5% with the most impact in Africa and the new technology market of India at 109M in assets. Barclays' risk management in this sector is defined by its committed to supporting the Equator Principles 'a framework designed to help banks around the world assess the environmental and social impacts associated with project funding' (Barclays 2010). To this end, Barclays participates in shared best practices forums such as the Equator Principles Financial Institutions environmental risk training events hosted by the United Nations Environmental Programme Finance Initiative (UNEP FI). Finally, we can observe the impact of close adherence of the CCCG is apparent in Barclays' human resource risk management policies. The overall positive outcome to the 2009 Barclays audit is reflected in renumeration of the group's discretionary cash payments of 1.5BN, with additional long term awards of 1.2BN. Of those long term awards, 74% are in valued in equity, with 5,000 employees receiving those investment benefits. The social impact of the organization, then includes employee 'well being' as a human resource strategy toward risk management. While seemingly illusive, employees are more likely to support shifts within protocol and security that add work to their jobs if compensatory strategies of retention are added to employee value relationships. Appendices Barclays Bank PLC 1 Churchill Place London, E14 5HP, England United Kingdom Tel. +44-20-7116-1000 Annual Income Statement All dollar amounts in millions except per share amounts 2009 2008 2007 2006 2005 Revenue -- -- -- -- -- Domestic Revenue 0.0 0.0 0.0 0.0 0.0 Exports -- -- -- -- -- Discontinued Operations -- -- -- -- -- Cost of Goods Sold 0.0 0.0 0.0 0.0 0.0 Gross Profit -- -- -- -- -- Other Operating Income 65,328.5 63,509.0 80,251.3 85,937.6 48,061.1 Expenses 58,462.8 54,774.5 66,203.3 72,476.9 38,924.0 Selling, Distribution & Admin -- -- 1,936.4 -- -- General, incl. 43,226.3 21,004.7 26,349.2 24,818.2 18,110.7 Depreciation & Amortization 1,986.0 1,333.0 1,303.6 1.2 758.7 Other Operating Charges 15,236.4 33,769.8 37,917.7 47,658.7 20,813.4 Operating Income 6,865.7 8,734.5 14,048.0 13,460.7 9,137.0 Financial Income 395.0 0.0 139.7 632.5 0.0 Interest Receivable -- -- -- -- -- Other Financial Income 395.0 -- 139.7 632.5 -- Financial Charges 0.0 0.0 0.0 0.0 0.0 Interest Payable -- -- -- -- -- Other Financial Charges -- -- -- -- -- Profit / Loss Before Taxes 7,260.7 8,734.5 14,187.7 14,093.2 9,137.0 Income Taxes 1,667.5 1,137.6 3,954.7 3,800.9 2,475.7 Corporation Tax 1,758.2 0.0 4,761.2 0.0 2,621.9 Other Tax (90.8) 1,137.6 (806.5) 3,800.9 (146.2) Profit / Loss after Taxes 5,593.2 7,596.9 10,233.0 10,292.3 6,661.4 Extraordinary Items (10,793.1) -- -- -- -- Exceptional Items / Minority Interests 471.4 583.3 752.6 669.7 304.5 Net Profit / Loss (before Dividends) 15,914.9 7,013.6 9,480.4 9,622.6 6,356.9 Retained Earnings at Start 35,765.0 20,583.5 23,069.2 16,570.3 11,452.7 Additions 24,549.9 15,118.5 13,618.8 11,320.4 7,125.9 Net Income 15,914.9 7,013.6 9,480.4 9,622.6 6,356.9 Other Additions 8,635.1 8,104.9 4,138.3 1,697.8 769.0 Deductions 1,247.0 3,200.0 8,296.6 5,261.7 4,020.6 Dividends 1,118.0 2,405.4 7,250.6 4,490.2 3,834.8 Other Deductions 129.0 794.6 1,046.1 771.5 185.8 Retained Earnings at End 59,067.9 32,502.0 28,391.4 22,629.0 14,558.0 Supplementary Info EPS (Diluted) 0.0 -- 0.0 0.0 0.0 Payroll (employees) 15,843.2 11,258.5 16,778.9 15,996.5 10,869.5 Salaries & Wages 12,869.8 9,078.9 -- 12,992.7 8,663.9 Social Security Costs 965.1 671.5 1,014.1 983.0 708.8 Pension Costs 2,008.3 473.3 600.9 861.6 597.0 Other -- 1,034.8 15,163.9 1,159.3 899.8 Directors Remuneration -- -- -- -- -- Revenue Growth 3,663.0 32,709.0 20,561.9 50,521.6 (81,202.9) Revenue Growth (%) 1.5% 17.5% 8.7% 27.8% (33.7%) Gross Profit Margin (%) -- -- -- -- -- Operating Margin (%) -- -- -- -- -- Return on Equity 0.1 0.2 0.5 0.5 0.4 Return on Assets 0.0 0.0 0.0 0.0 0.0 Interest Coverage Ratio -- -- -- -- -- Annual Balance Sheet All dollar amounts in millions except per share amounts Current Assets 2009 2008 2007 2006 2005 Cash 129,769.8 43,446.5 11,580.5 180,410.9 9,302.2 Bank 129,769.8 43,446.5 11,580.5 180,410.9 9,302.2 Deposits -- -- -- -- -- Other -- -- -- -- -- Net Receivables 7,964.6 6,967.3 8,075.0 8,416.3 6,140.1 Trade Debtors 146.5 -- -- -- -- Other Receivables 7,818.1 6,967.3 8,075.0 8,416.3 6,140.1 Inventories -- -- -- -- -- Finished Goods -- -- -- -- -- Work in Progress -- -- -- -- -- Other -- -- -- -- -- Method of Stock Evaluation -- -- -- -- -- Other Current Assets 2,031,390.0 2,894,760.6 2,418,755.0 1,470,471.1 1,556,279.0 Prepayments 2,161.2 1,975.6 1,898.5 2,702.3 1,808.1 Tax Recoverable 555.8 563.0 1,034.1 1,090.7 1,180.2 Marketable Securities / Investments 821,835.7 94,097.7 -- 596,673.3 360,308.5 Due from Group / Associates -- -- -- -- -- Other 1,206,837.2 2,798,124.3 2,415,822.4 870,004.8 1,192,982.1 Total Current Assets 2,169,124.4 2,945,174.4 2,438,410.6 1,659,298.4 1,571,721.3 Non Current Assets Fixed Assets 7,037.7 6,764.7 5,980.9 4,879.8 4,738.0 Land & Buildings (freehold) 4,303.2 3,781.8 2,808.8 2,273.5 2,456.7 Leasehold -- -- -- -- -- Fixtures & Fittings -- -- -- -- -- Plant & Equipment 2,734.5 2,982.9 2,377.6 2,606.4 2,281.3 Intangible Assets 14,006.9 15,054.8 2,559.3 14,308.6 12,543.4 Goodwill -- -- -- -- -- Intangibles -- -- 2,559.3 -- -- Other Long Term Assets 6,262.1 4,354.9 3,673.2 272,971.1 939.3 Long Term Investments 2,594.3 493.5 752.6 271,369.3 939.3 Deposits -- -- -- -- -- Due from Group / Associates -- -- -- -- -- Other 3,667.8 3,861.4 2,920.6 1,601.8 -- Total Non Current Assets 27,306.7 26,174.4 12,213.4 292,159.5 18,220.8 TOTAL ASSETS 2,196,431.1 2,971,348.8 2,450,623.9 1,951,457.9 1,589,942.0 Current Liabilities Accounts Payable 0.0 -- -- -- -- Short Term Debt 115,643.5 -- -- -- -- Bank Loan / Overdraft 672.1 -- -- -- -- Notes / Loans Payable 114,971.4 -- -- -- -- Loans from Principles -- -- -- -- -- Other Current Liabilities 1,943,276.2 2,905,017.6 2,344,434.7 1,858,529.6 1,374,983.2 Accruals & Deferred Income 9,566.7 9,400.2 12,127.5 11,997.9 8,104.8 Taxation & Social Security 1,535.3 1,758.5 2,617.1 1,997.4 1,285.1 Due to Group / Associates -- -- -- -- -- Dividends -- -- -- -- -- HP & Finance Leases 194.3 50.7 165.7 21.5 497.2 Other 1,931,979.9 2,893,808.2 2,329,524.4 1,844,512.8 1,365,096.1 Total Current Liabilities 2,058,919.6 2,905,017.6 2,344,434.7 1,858,529.6 1,374,983.2 Long Term Liabilities Long Term Debt 48,445.3 6,699.6 46,555.7 43,148.9 175,966.0 Due to Group / Associates > 1 yr -- -- -- -- -- Deferred Taxation 748.5 440.0 1,706.8 552.2 1,204.3 Mortgages / Loans -- -- -- -- 7,564.6 HP & Finance Leases > 1 yr -- 88.3 -- 264.4 -- Minority Interests 4,417.9 3,433.0 3,890.8 3,299.6 2,714.8 Other 43,278.9 2,738.3 40,958.1 39,032.8 164,482.3 Total Long Term Liabilities 48,445.3 6,699.6 46,555.7 43,148.9 175,966.0 TOTAL LIABILITIES 2,107,364.9 2,911,717.1 2,390,990.4 1,901,678.5 1,550,949.2 Shareholders Equity Issued Share Capital 3,825.4 3,470.6 4,755.2 4,627.2 4,039.5 Share Premium Account 19,257.7 17,454.4 21,462.2 18,508.9 15,280.6 Reserves 6,915.1 6,204.6 5,024.7 4,014.3 5,114.7 Revaluation Reserves -- -- -- -- -- Other Reserves 6,915.1 6,204.6 5,024.7 4,014.3 5,114.7 Profit & Loss Account 59,067.9 32,502.0 28,391.4 22,629.0 14,558.0 Other -- -- -- -- -- TOTAL SHAREHOLDERS EQUITY 89,066.2 59,631.7 59,633.5 49,779.4 38,992.9 Current Ratio 1.1 1.0 1.0 0.9 1.1 Quick Ratio 1.1 1.0 1.0 0.9 1.1 Debt / Equity Ratio 23.7 48.8 40.1 38.2 39.8 Long Term Debt / Equity Ratio 0.5 0.1 0.8 0.9 4.5 Asset Growth (1,073,222.9) 1,194,668.0 461,197.2 141,748.2 691,313.5 Asset Growth % (32.8%) 67.2% 23.2% 7.8% 76.9% Liability Growth (1,096,670.7) 1,178,270.1 452,311.7 136,351.4 683,754.0 Liability Growth % (34.2%) 68.0% 23.3% 7.7% 78.8% Days Payable 43.0 34.7 53.9 54.8 60.2 Annual Cash Flow All dollar amounts in millions except per share amounts 2009 2008 2007 2006 2005 Net Operating Cash Flow 65,967.1 47,572.7 (21,663.8) 19,693.6 (18,009.1) Operating Profit / Loss 7,260.7 8,734.5 -- -- -- Depreciation & Amortization 1,904.7 1,376.4 -- 1,198.4 -- Net Interest -- -- -- -- (15,148.1) Asset Disposal & Impairment -- (536.9) -- -- -- Share of Groups / Associate profit -- -- -- -- -- Creditors -- -- 1,335.5 -- -- Debtors -- -- -- -- -- Inventories -- -- -- -- -- Other Changes in Working Capital -- -- (1,305.6) -- -- Income Taxes (1,872.9) (2,496.6) -- -- -- Other Cash from Operation Activities 58,674.6 40,495.5 (21,693.8) 18,495.2 (2,861.0) Net Investing Cash Flow 19,525.3 (12,671.1) 19,994.9 (2,304.8) (9,154.2) Capital Expenditure (1,599.0) (2,327.3) (3,056.2) (2,451.7) (93,426.3) Acquisitions / Disposals (173.6) -- -- 644.2 -- Investments 16,739.8 (83,590.3) -- -- -- Other Cash from Investment Activities 4,558.0 73,246.4 23,051.2 (497.4) 84,272.1 Net Financing Cash Flow (6,131.5) 18,984.2 7,011.0 2,187.3 25,104.1 Sale / Purchase of Stock -- -- -- -- -- Dividends Paid (939.6) (2,599.4) (6,823.4) (4,646.8) -- Changes in Debt / Borrowings (1,328.2) (1,746.9) -- -- 798.3 Other Cash from Financing Activities (3,863.6) 23,330.5 13,834.4 6,834.1 24,305.8 Net Change in Cash & Cash Equivalents 79,360.9 53,885.9 5,342.1 19,576.1 (2,059.3) Cash at Beginning of Period 102,737.0 47,873.8 60,691.5 39,957.1 37,164.1 Other Net Cash -- (8,395.8) -- -- -- Foreign Exchange Effects -- (8,395.8) -- -- -- Other -- -- -- -- -- Cash at End of Period 182,097.9 93,363.9 66,033.6 59,533.2 35,104.8 Works Cited Barclays. Available at: http://group.barclays.com/Home Combined Code on Corporate Governance, 2008. Financial Reporting Council. Available at: http://www.frc.org.uk/documents/pagemanager/frc/Combined_Code_June_2008/Combined%20Code%20Web%20Optimized%20June%202008(2).pdf Barclays Bank PLC, 2010. Hoovers. Available at: http://www.hoovers.com Spring 2010: Investor Presentation Post Q1 IMS. Barclays. Available at: http://group.barclays.com/cs/Satelliteblobcol=urldata&blobheader=application%2Fpdf&blobheadername1=Content-Disposition&blobheadername2=MDT-Type&blobheadervalue1=inline%3B+filename%3DSpring-2010-Investor-Presentation.pdf&blobheadervalue2=abinary%3B+charset%3DUTF-8&blobkey=id&blobtable=MungoBlobs&blobwhere=1231868095100&ssbinary=true Read More