Barclays Bank Financial Management - Essay Example

? Barclays Bank Financial Management Behavioural Finance Barclays Bank has done a very good job in implementing behavioural economics as a way to guarantee that it is able to expand its interests. Behavioural finance theory postulates that although individuals are mostly rational beings who make rational economic decision with the aim to expand their wealth, they sometimes make irrational decisions influenced by emotions and psychology thus making irrational decisions about their finance (Baker and Nofsinger 49). These irrational decisions may include decision on which bank to bank with, whether or not to take loans, which financial and banking products to buy, etc. In order for a business like Barclays to tap into this aspect of human beings and convert it into business opportunities, it has to know how to develop products whose appeals are eked from the emotional and psychological factors. Barclays Bank for a long time has been seen to capitalise in this, even before the field of behavioural finance was. One of the best example as to how Barclays Bank is using behavioural finance theory to advance its business is the English Premier League sponsorship which the bank has sponsored since 2001. Sports generate a lot of emotions epically emotions of belonging and fondness. In this regard, sponsoring the English Premier League which is popular not only in England but actually in the whole world has enabled the bank to be able to access a lot of market. There are so many customers around the world who become customers to Barclays Bank just because they associate it with their favourite sport, soccer. Business Funding at Barclays Bank Being a three hundred year old business, Barclays Bank has used a number of funding methods over the years. However, there are the most recent funding methods which the bank has opted. For instance, in late August 2007, Barclays bank had to opt for a loan of $3.2 billion from the Bank of England in order to be able to settle its debts to other banks at the end of trading. This led to some worries in the public that the bank had some issues with its liquidity. However, it later turned out that the bank did not have any issues with its liquidity but was rather only having problems with its computerised settlement system which led to the bank opting for alternative methods to deal with the issue at hand. In the United States, the bank has also had some liquidity issues and there were fears that the bank may be having a bad debt of over $10 billion and this led to the shares of the bank dropping a whole 9%. However, it later emerged that the debt was much less than the amount and was actually $1.9 billion. Funding In an attempt to enhance its tier 1 capital ratio, Barclays Bank tried to raise 4.5 UK pounds through a non-traditional rights issue in mid 2008. However, only 19 percent of the shareholders took up the rights offer and this led to the majority shareholder, China Development band and Qatar Investment Authority with majority shares. Later in the same year, Barclays tried another round of capital-raising which led to seven billion UK pounds being raised, mainly from investors from Qatar and Abu Dhabi. The fact that the capital raising was not from the existing shareholders led to some worries by the existing shareholders who objected to the fact that they were not pre-empted about the rights issues. The shareholders even threatened to boycott the decision in the extraordinary shareholders meeting. Barclays Bank Shares Barclays Bank is a publically traded firm which trades both in the London Stock Exchange as well as the New York Sock Exchange. All its subsidiaries also trade in the local stock exchange markets of the countries where they operate. Barclays Bank has been in the stock exchange for a long time now and the current price of its shares is ?284.35 which is a fall of 1.59% from previous price. Barclays bank has a capitalisation of over ?21.8 billion making it the 22nd largest firm listed in the London stock exchange market. The shares have been openly traded since the bank was listed in the stock exchange, apart from a short period when the bank’s shares were suspended in the New York Stock exchange market following a sudden fall of the shares by 9% after rumours of liquidity issues. The shares trading however resumed as soon as the issue was solved. Portfolio Diversification - Risk & Return Barclays Bank has some of the most diversified portfolio of financial products which increases its safety in trading. The bank offers a number of financial services ranging from Loans, Mortgage services, investment banking etc. This diversification is seen as good for the shareholders because it is a way to cushion the bank from market shocks. Like in any other investment plan, Barclays uses diversification as a way to guarantee that if one portfolio fails, the bank will be able to get cushioning from the other portfolio of products which it is offering. As part of its diversification program, Barclays has for a long time acquired other businesses and products from other businesses. The latest of these acquisitions is the acquisition of the Lehman Brothers, an American investment banking firm which went bankrupt in 2002. Barclays bank acquired this business and capitalised on developing most the products offered by the bank before it went bankrupt. Barclay’s bank’s Dividends Like any other business with public shareholders, Barclays Bank pays its shareholders dividends regularly. Barclays Bank announces and pays dividends every quarter. The dividends are paid in proportion to the number of shares owned by the individual shareholders meaning that those with the highest number of shares get the most dividends. The important thing to note about Barclays Bank with regard to its dividend payment program is that the dividends for its shares are paid out quarterly as opposed to annually and this gives the shareholders an increased access their investment. The payment of the dividends on a quarterly basis is inspired by the understanding that the investors have a right to benefit from their investment as often as is feasible and paying out the dividends quarterly makes this possible as opposed to paying them only once per year. Derivative Securities in Barclays bank Financial derivatives are financial products which are derived from other financial products (Sundaresan 54). Financial firms such as banks and insurance firms are able to derive some products from the existing products. Barclays has a number of derived products which are derived from the various financial products. These are security products which are derived from the investment products given by Barclays bank. Barclays bank for instance trades in such derivatives as including interest rate swaps, futures and options on futures. This makes it possible for the bank to only diversify its products but to also be able to provide useful products to the customers especially those who are willing to trade their securities for future options. Corporations & Markets - Agency Conflicts Agency conflicts are likely to exist in a firm that is publicly traded (Ding 24). Publicly traded firms such as Barclays bank have their ownership placed in the hands that have very little control of the firm (the shareholders) and the managers in such a firm are likely to act in their own interest instead of the interests of the owners of the business (shareholders). This can cost the firm a lot of money and it is necessary for such an organisation to be able to have corporate governance systems which align the interests of the manager (the agent) to the interests of the shareholders (the principle). Looking at Barclays reveals that there have been a number of cases where the agency conflicts have appeared. One such instance was the time when the bank’s managers decided to raise funds from investors who were not current shareholders and failing to regard the interests of the existing shareholders who would have probably wanted to be consulted and given the precedence in raising the capital. This rights issue which lead to the firm over ?7 billion raised led to the shareholders complaining about the way it was done because it led to the rights being bought from people who were not shareholders of the bank thus shifting the ownership ration of the firm. There have been other issues with regard to the managers making decisions which end up affecting the shareholders in a negative way. The other instance was in early 2007 in the acquisition of Del Monte in which case the representatives of Del Monte later realised that the representatives of Barclays bank had failed to reveal some conflict of interest issues. Del Monte presented a case against Barclays and the court directed that Barclays had to pay twenty million pounds to Del Monte as well as giving up an almost equal amount of shares in Del Monte. Efficient Markets Hypothesis and Barclays Banks’ Attitude towards it Efficient market hypothesis seem postulates that there is sufficient information in the market and that one cannot achieve a market values of a financial product which is higher than the market value as the product will re-enact itself in the market in accordance to the available information. With regard to this, Barclays Bank can be seen as holding into this in two main and contradicting ways. To begin with, Barclays Bank has invested a lot on information systems which are geared towards making the trading of financial products easier. The bank has invested a lot in information systems which make information available both to the bank as well as t the public as especially to the bank’s shareholders. This increased access to information about the financial market is important in order to create an environment where the trading of financial products is open and fair. This is in line with the efficient market hypothesis and as more and more banks increase the access to financial information. It will also be harder for any individual or organisation to be able to manipulate the financial market to their benefit. There is however one thing with Barclays Bank as it has in the past been accused of trying to manipulate financial markets and systems. For instance, in June 2012, Barclays was fined ?290 million for trying to regulate and manipulate both the London Interbank Offered Rates. The bank was accused of trying to manipulate the Euro Interbank Offered Rates in the same year. During this time, the bank was accused to be submitting false and misleading rates to the bank as a way to increase their profit or as a way to improve their image as a safer financial institution, especially in the face of the financial crisis. This is definitely against efficient market principle and it can only be seen as a shame that a big and experienced bank such as Barclays can be that careless with financial information. Bonds offered by Barclays Bank As an investment bank, Barclays has a number of bonds which the public can invest in. The bank offers various types of bonds to suit the needs of various types of investors. Barclays bank has diversified its bonds and has given the public a number of options depending on which kind of investment they are looking for. A good example of this is the structured bond which the bank offers. There are a variety of them, each with different security feature and this makes it possible for the investors to choose the best for them. These structured bonds offered by the bank include the Barclays Europe 5 (100% of capital guaranteed) which is a Structured bond with a term of 5 years (Barclays Bank para 7). The other one is the Barclays Europe 3 (90% of capital guaranteed) which matures in three and a half years. The banks also has a structured bond called the Barclays Memory (100% of capital guaranteed) which also matures in five years just as the Barclays Europe 5 but with different features (Barclays Bank para 8). Works cited: Baker, Kent. and Nofsinger, John. Behavioral Finance: Investors, Corporations, and Markets. Hoboken, NJ: John Wiley & Sons. 2010. Print. Barclays Bank. Barclays Structured Bonds . Web: August 20, 2013, from Barclays: Personal Banking: Ding, Fei. Resolving Agency Conflicts in the Presence of Information Asymmetries. New York City, NY: ProQuest. 2007. Print. Sundaresan, Suresh. Fixed Income Markets and Their Derivatives: Academic Press Advanced Finance Ed 9. New York City, NY: Academic Press. 2009. Print. Read More