Barclay’s Second Verse Same as its First
February 21, 2009 – 9:42 am
Barclays second half and full-year 2008 earnings report was a rerun of the bank’s first half, including beating estimates that analysts purposefully low-balled. Just as in the first half, the bank and its cheerleaders are still trying to con investors regarding the institution’s financial health. Witness:
Barclays Plc reported second-half profit that exceeded analysts’ estimates, and President Robert Diamond said the investment bank had an “extremely strong” start to 2009 after buying Lehman Brothers Holdings Inc. assets.
Barclays, the third-biggest U.K. bank by assets, rose 11 percent in London trading after saying credit writedowns this year will be less than last year’s 8.1 billion pounds. Net income jumped to 2.66 billion pounds ($3.9 billion), or 31.3 pence a share, in the six months ended Dec. 31, up 49 percent from a year earlier, according to Bloomberg calculations based on full-year results posted today.
“There’s a bank that’s alive and well underneath all this concern about structured credit,” said Michael Trippitt, a London-based analyst at Oriel Securities Ltd., who has an “add” rating on Barclays.
All this makes you wonder how many shares Michael Trippitt is holding. Since the beginning of the year, the bank’s shares have taken a roughly 25 percent haircut. Furthermore, any investor must be absolutely amazed that Barclays continues to post profits in the credit crunch. While this keeps them from having to write down all of their junk debt, it’s just a trick in the end.
…,Britain’s third largest bank by assets warned that further asset writedowns — on top of the massive 8.1 billion pounds ($11.9 billion) booked for 2008 — were likely and said executive directors would not be getting any bonuses.
Oh, no! No bonus! Someone do something!
Unfortunately, there’s nothing you can do because the bankers created the credit crisis in ruthless pursuit of their bonus. Now, as a crisis sets in, the banks start singing and dancing to the no bonus song. At Barclays it’s standard operating procedure, but you can’t deny they’re scared.
British Treasury chief Alistair Darling on Sunday launched a review of the banking industry which will also look at payment practices. Critics accused the government of failing to crack down on the controversial payouts amid mounting public anger over rewards for staff at institutions bailed out by the taxpayer.
For the future, Barclays said it was reviewing its compensation arrangements to ensure they “evolve appropriately.”
And you know that means taxpayers should prepare to bend over!
The writedown, partly offset by an £852m gain from revaluing the bank’s own debt, was largely responsible for the fall in first-half pre-tax profits, down 33 per cent to £2.75bn.
Barclays took gains of 1.7 billion pounds on the falling market value of its own bonds, meaning it could buy back its debt for less than before.
Many European banks have booked gains in this way, because the fall in value means they could buy back their debt for less than before. But other banks, including Deutsche Bank, have refused to do so because the gains eventually reverse out as the debt recovers in value.
In other words, Barclays dug a £1.7B ($2.45B) hole and still has to fill it up again. For now, though, they have tricked people into believing the bank looks good.
Just as it did in the first half, the bank refuses to take the write-downs that it must eventually take and execs continue talking up the bank’s improving condition.
The level of write-downs Barclays has taken compared to its rivals has been a contentious issue and expectations of more losses have seen its credit rating downgraded in recent weeks. See archived story.
Robert Sage, an analyst at Macquarie Research, said Monday that net write-downs may remain “at a material level” in 2009, especially since the accounting gains made from the falling value of its own debt will probably decline.
“Barclays’ peers continue to be more prudent in their write-downs and in our view this remains a primary concern for the stock,” Sage said.
He added that given the low underlying profit and the continuing deterioration in asset quality, he remained unconvinced over the bank’s ability to resume dividends this year.
Without bonuses, the dividend remains the only meal ticket for insiders. Data for the number of shares held by officers and directors are unavailable, but the will likely do anything to reinstate that dividend. Just as in the first half, the bank must take a big impairment hit as it pours money into credit losses provisions under the weight of a burgeoning balance sheet.
The bank’s balance sheet, meanwhile, ballooned 67% to 2.05 trillion pounds, driven by derivatives moves, growth in lending and the impact of the weak pound.
Risk weighted assets, which help determine how much capital a bank needs to hold, rose 22% to 433 billion pounds, though the bank, which raised 13.6 billion pounds of Tier 1 capital during the previous 12 months, said its capital ratio still stood at 9.7% at year-end, slightly ahead of previous guidance.
During the year, the bank’s impairment charges and other credit provisions totaled GBP 5.42 billion, a 94% upside from the previous year. The impairment charges included GBP 1.76 billion arising from US sub-prime mortgages and other credit market exposures.
“As long as they don’t need any more capital, then you have to say that Barclays is looking very cheap,” said Alan Beaney, who helps manage $2 billion at Principal Investment Management in Sevenoaks, England. “What you are starting to see, and it takes a brave man to say it, is a bottom in the banks.”
But that’s just it, THEY DO NEED MORE CAPITAL! Just because they take it on the sly doesn’t mean they aren’t taking it. Not satisfied to be wrong about Barclay’s, this fool calls a bottom in the banks. We did say talk is cheap didn’t we.
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