Barclays Bank Plc in the UK - Coursework Example

XXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXX Tutor: XXXXXXXXXXXXXXXXXXXXXXX @2012 Barclays Introduction Barclays bank is the tenth largest banking and financial services provider located in different parts of the world including the Americas, Europe, Asia, Africa and Australia. It provides its customers with services such as corporate and investment banking and wealth and investment management, credit cards and personal banking. It has 140, 000 employees located in over fifty countries. It accepts deposits, transfers, protects, lends and invests money for its customers that are located in different countries. The financial organization has a long history. In 1690, two goldsmith bankers; Thomas Gould and John Freame would move from one place to another bearing the sign of the black spread eagle and would accept gold deposits from anyone visiting Lombard Street in the city of London. The black eagle sign was convenient to most people because majority of the population could not read. In 1736, the son in law of John Freame, James Barclay became a partner to the business. Years later and in 1864, the first banking house was erected in Lombard Street and the gold saving and lending business has since evolved into a classic form of financial services organization which is today known as Barclays Bank Plc in UK and that has a global banking branch network. Financial Services Barclays offers a wide range of financial services. For instance, Barclay’s capital is responsible for managing interest rates, foreign exchange, and equity and commodity risks. Barclay’s capital specializes in three core areas namely; private equity which provides clients with the opportunity to buy privately transacted equities from private companies located in different parts of the world; credit which is comprised of investment grade and high yield bonds and loans; interest for equity products, money markets, fixed income, emerging markets, prime services and commodities. Products offered include; savings accounts, insurance, debit card, online banking, loans etc (Pang, 2009). In general, Barclays deals with retail and commercial banking, investment banking, credit cards, investment and wealth management services. The financial company offers commercial and residential mortgages to individuals and businesses and has flexible terms of repayment. Investors can obtain short term funding by the way of overdrafts which helps them avoid high exchange rate and interest costs. Overdraft provides investors with a more flexible and convenient source of working capital with a repayment period that is renewable upon expiry (Andreeva & Branda, 2009). By linking the interest rate of the overdrawn amounts to the Barclays base rate, the client is cushioned from high but fluctuating interest rates. The bank also offers standby letters of credit of financial guarantees to individual’s who would want to support their trade, corporate or personal related activities with other financial institutions. These guarantees that can also be tailor made include; bonds, maintenance guarantees, performance guarantees, retention money guarantees, advance payment guarantees, indemnities, acceptances among others (Dixon, 2009). The bank also offers a wide range of foreign exchange products including; spot exchange, forward exchange contract and option dated forward exchange contract. Besides these, the company gets to provide a wide range of other financial products and services through mergers and acquisitions. Recently, Barclay’s combines its merger and acquisition and corporate finance divisions into a single unit. The move was intended to bring create a bond between coverage bankers and Mergers and acquisitions bankers who are part of corporate finance team to attract more business to the bank by driving revenue growth and offering strategic financial and investment advisory services. It also provides global ATM services by partnering with five international banks (Deering, 2004). The bank acquired Absa in South Africa (2005), PK Akita (2009) in Indonesia, stand ford life bank (2010), MBNA Europe bank (2010), Lehman brothers (2008) among others. Absa now handles investment banking tasks hand in hand with other services provided by the bank. Lehman sells equities, offers advisory services, fixed income, conducts research, investment managements and banking services etc. Recently, the bank launches a Barclaycard Pay Tag in the UK. This is an innovative product that is a sticker. When attached at the back of a mobile phone, clients are able to make wireless transactions. Another product known as pingit allows users in the UK to send and receive money through cell phones and eliminates the need to share bank details (Rapoport, 2011). Barclays Corporate Governance Good corporate governance practice enables an organization to create and sustain shareholder confidence and value by ensuring that personnel behavior is transparent, legal and ethical at the same time. The board of directors is charge with the responsibility of creating and delivering sustainable shareholder value through the management of the Groups business (Agius, 2012). The strength of the board is contingent on ethical leadership and its ability to promote collective vision of the bank’s culture, behaviors, values and purpose. The directors must act in good faith to ensure that the company’s mission succeeds and that shareholders benefit. The board must take into consideration things such as the interests of the; Barclays employees; long term consequences of any decision; relationship with supplier, customers and other stakeholders; the banks reputation; the environment and the community; and the need to ensure fairness between Barclays and its shareholders. The board which is the decision making body is responsible for ensuring that an internal control system is in place to enhance effective and efficient operations, compliance with law and regulations and internal financial controls (Agius, 2012). The executive and non executive directors are obligated to comply with the statutory statement of Directors duties under the companies Act 2006. One of the obligations requires them to avoid conflict of interest between their duties to the company and their personal interests. The Financial Services Authority (FSA) of the UK regulates Barclays. The directors are required by this body to comply with the Markets Act 2000 (. This act states that the directors must act with integrity; due skill, care and attention; and observe proper standards of market conduct among other requirements. Other laws and regulations supplement these requirements especially in other countries where the bank operates. However, unethical practices by some of the bank personnel in the UK and elsewhere has cast dust upon the companies image leading to a closure of more than 170 banks due to a run on the bank that these behaviors triggered. Transparency international UK advised Barclay’s board of directors to launch an enquiry into the scandals and bring into the light those responsible so as to restore investor confidence by improving its corporate governance and internal controls. Barclays Analysis of External Environment Using PEST Political and Legal environment Government stability and political risk of a country are the political factors affecting the operations of a bank. Unstable regulatory environment in the UK has been affecting the banks operations. In countries like South Africa, retrogressive regulations requiring banks to donate to political parties as part of their support to democracy has reduced banks revenues. On a brighter note, general political stability in most countries where the bank operates has facilitated its growth. Basel rules will certain alter future operations for the bank. These rules which were enacted on 2011 require all banks to hold top quality tire one capital equal to 10% of their assets (Rodrigo, 2012). The bank must comply with the terms under project Merlin agreement which directs all major banks in the UK to lend more money from 2011 onwards to individuals operating small businesses (Werdigier, 2009). Barclays bank will be threatened by the move to increase bank levy to 2.5 billion pounds this year which is in excess of 0.8 billion pounds. Other political legal factors that will affect the banks operations include levy imposed on direct and indirect taxes, Increase in employment rate and recovery of national recovery period will boost the bank’s business. Economic The bank will gain from an increase by 0.5% of the gross domestic product in the UK. Inflation that was steadily held at 4.5% consumer prices index and 5.2% consumer prices index will favor the banks business (Rodrigo, 2012). The bank of England monetary policy committee lowered interest rates to a record low of 0.5 % on October 2012. Data from European Central Bank suggest that interest rates have risen by 1.25% in euro zone. The fall of Euro by 1.44880 against the US dollar will impact negatively on the banks business. Japan which is in recession and high rates of inflation in china and India will affect branches located in those countries. Branches in Korea have been struggling with an increase in consumer prices and loan rates. The unrest in the Middle East and North Africa affected aviation industry which brings huge revenues to the bank. High import costs in developing prices have led resulted in higher food prices as a result of an increase in oil prices due to bad weather. This has reduced banks activities in these regions due to a shortfall in production. Social Proliferation of local banks and Islamic banks in developing countries has stalled the banks growth of customer base. The bank must therefore struggle to win the hearts of its customers to maintain its reputation. Bad publicity from scandalous dealings led Barclays to close 171 of its branches located in rural areas. Customers reacted angrily when the bank in the UK increased its overdraft charges. Technological Mobile banking and online banking will experience increased growth due to the launch of fiber optic telecommunication and the internet. Global launch of cashless kiosks i.e. NCR Selfserv 4 will boost business. These machines run on NCR APTRA software applications that comply with EMV and PCI standards. Mix-and-Match technology software will facilitate transactions in these kiosks by providing digital signage (Rodrigo, 2012). SWIFT codes, ATMs will continue to support the growth of the bank by facilitating international payments. Easy access to computers and global increase in computer literacy will boost growth. Conclusion Political factors will continue to influence the operations of the bank as long as it has branches outside the UK. High taxes and different banking rules in countries like India will continue to restrain the banks growth. Too much regulation from political actors will always interfere with banking operations. Social factors such as the recent scandals that led to the closure of 171 banks will continue to affect the banks operations way into the future unless genuine measures are taken to improve the banks image. Bibliography Agius, M., (2012), Corporate Governance in Barclays. Barclays corporate secretariat, x(x) pp. 1-94. Andreev a, A, and Branda, R., 2009, Rates of Return on Assets and Equity for Private Banking Sector in Selected Countries of Western and Eastern Europe. Background Paper, World Bank, Washington, DC. Deering, T., (2004), The Perfect Machine. Construction Digest. 79(23) pp. 12-13. Dixon, R., (2009), Banking in Europe: The Single Market. London, Rutledge. Werdigier, J.(2009) Pressure Rises on Banks to take Aid from Britain. The Newyork times [online] 7 March.[Accessed 7 March 2010]. Available at: http://www.nytimes.com/2009/03/08/business/worldbusiness/08bank.html?_r=1 Pang, E., 2009, The International Economy summer. The Wall street Journal, 9(6) pp. 551-557. Rapoport, A., 2011, Technology and Development of Banking. Englewood Cliffs, New Jersey. Rodrigo, K., (2012), Strategic Analysis (SWOT, Porter, PESTEL) of Barclays Group PLC, the write pass journal, x(x) pp. x-x. Read More