MarketLine Blog

Barclays Announces 3,700 Job Cuts & a Plunge in Pre-Tax Profits

Barclays was today the first of the UK’s big four banking groups to announce its 2012 results and they did not make for pretty reading, at least at first glance.

The headline grabbing figure was £246m ($394.5m) which represented the bank’s statutory profit before tax. This is a huge fall from the £5.9bn ($9.5bn) seen in 2011, due in the main to compensation for mis-sold products and a loss on the value of its own debt. There was also the not-so-insignificant matter of a £290m ($465.1m) for its role in the LIBOR scandal, an affair which has caused unquantifiable reputational damage.

Consequently, the division that bore the brunt of these issues was its core UK business, which saw profits plunge by 71% to £292m ($468.3m) as a result of the £1.2bn provision it made for mis-selling payment protection insurance. The bank’s European retail and business banking arm continued to struggle, with losses of £239m ($383.3m).

The company’s investment banking arm continues to drive the bank’s overall results, generating £4bn ($6.4bn) of statutory profits– up 37% from a year ago.

On the surface, these numbers would appear to be disastrous for Barclays, but a deeper look reveals a more optimistic picture with adjusted profit before tax rising 26% to £7.05bn ($11.3bn), suggesting that without the provisions needed to repair what CEO Anthony Jenkins called ‘reputational damage,’ the bank is very much in rude health.

Nonetheless, Jenkins announced the outcome of his operational review with the major news coming in the form of 3,700 job cuts. Of these losses, 1,800 will come from its corporate and investment banking, with the vast majority in Asia, and 1,900 will come from its European retail and business banking arm.

The company’s underlying results, coupled with Jenkins’ decisive action, pleased the city as Barclays share price grew 7.6% in afternoon trading.

So the bank’s underlying operations are, in the most part, profitable and look set to become more so once Jenkins’ measures are in place. Consequently, the bank should return to strong profit in the near future. Whether it can rebuild its damaged reputation as quickly is doubtful.

For an in-depth look at Barclays, please read ‘Barclays PLC’

For a deeper understanding of the Bank’s investment banking operation, please read our case study ‘Barclays Capital: Building on a success story’:

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