Questioning the ‘brilliant’ financial disclosure by Barclays...
What would your impromptu reaction be, if ‘some’ aggrieved investor walked up to you, complaining about ‘some’ well known financial institution posting ‘some’ unprecedented loss during the year gone by? Chances are, you’ll hardly bother to offer him a dimeworth of condolence, forget empty words of solace! For isn’t it a norm these days, for banks to post ‘negative earnings’, CEOs to walk away with zero bonuses and employees to get jettisoned?! Now how about this exercise – what if ‘some’ investor walked up to you, complaining about ‘some’ well-known financial institution posting ‘some’ below-average growth in profits during the year gone by? Chances are, you’ll entice and cajole him into selling his shares (in that company) to you; for what better than a financial entity that can promise and deliver on profits even at a time when the world is tearing its hair apart on the brobdignanian losses that has come to haunt investors...
And this is where Barclays comes into the scene, like a fresh breeze, declaring financials for 2008 on a positive note (what a relief!), with net profits having risen by 4% to touch $7.54 billion and total PBIT ringing the $9 billion bell during FY‘08. Although these make Barclays’ performance sound totally ‘beyond expectations’ (which it is to an extent), the real story behind the scene is bound to give its investors few more wrinkles on their foreheads. And here we are not even referring to the huge 14% fall in EBIT over FY‘07 or about another worrisome 14% fall in diluted EPS for FY‘08; we’re referring to some abnormalities than only get more obvious on closer scrutiny.
Though the bank witnessed a great group balance sheet growth of 71% to touch $2.92 trillion (in FY‘08), but the credit for the same primarily goes to the fall in value of Sterling as opposed to the UK Dollar and Euro. Secondly, the increase in loans and advances of $175.99 billion also deserves credit for the growth in balance sheet growth. Worst, the true indicator of real earnings (Economic profit, which excludes opportunity costs) has fallen by a deplorable 23% as compared to the previous year to touch $2.51 billion.
What would your impromptu reaction be, if ‘some’ aggrieved investor walked up to you, complaining about ‘some’ well known financial institution posting ‘some’ unprecedented loss during the year gone by? Chances are, you’ll hardly bother to offer him a dimeworth of condolence, forget empty words of solace! For isn’t it a norm these days, for banks to post ‘negative earnings’, CEOs to walk away with zero bonuses and employees to get jettisoned?! Now how about this exercise – what if ‘some’ investor walked up to you, complaining about ‘some’ well-known financial institution posting ‘some’ below-average growth in profits during the year gone by? Chances are, you’ll entice and cajole him into selling his shares (in that company) to you; for what better than a financial entity that can promise and deliver on profits even at a time when the world is tearing its hair apart on the brobdignanian losses that has come to haunt investors...
And this is where Barclays comes into the scene, like a fresh breeze, declaring financials for 2008 on a positive note (what a relief!), with net profits having risen by 4% to touch $7.54 billion and total PBIT ringing the $9 billion bell during FY‘08. Although these make Barclays’ performance sound totally ‘beyond expectations’ (which it is to an extent), the real story behind the scene is bound to give its investors few more wrinkles on their foreheads. And here we are not even referring to the huge 14% fall in EBIT over FY‘07 or about another worrisome 14% fall in diluted EPS for FY‘08; we’re referring to some abnormalities than only get more obvious on closer scrutiny.
Though the bank witnessed a great group balance sheet growth of 71% to touch $2.92 trillion (in FY‘08), but the credit for the same primarily goes to the fall in value of Sterling as opposed to the UK Dollar and Euro. Secondly, the increase in loans and advances of $175.99 billion also deserves credit for the growth in balance sheet growth. Worst, the true indicator of real earnings (Economic profit, which excludes opportunity costs) has fallen by a deplorable 23% as compared to the previous year to touch $2.51 billion.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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