We all have a broad idea of what the companies in our portfolios do. But how much do you really know about their products and their markets, or how much each of their activities contributes to the bottom line? Understanding how a company makes its money can help you decide whether it’s a good investment.
Today I’m examining what Barclays (LSE: BARC) (NYSE: BCS.US) does. The composition of its business is quite distinct from its UK bank peers. Here’s the breakdown of its 2012 income:
|
% |
|
| Investment banking | 40 |
| UK retail & business banking (RBB) | 15 |
| Barclaycard | 14 |
| African RBB | 11 |
| Corporate banking | 10 |
| Wealth management | 6 |
| European RBB | 4 |
Big ticket
Investment banking accounts for 40% of the bank’s income. Corporate banking — providing services for multinationals and large domestic corporate — is also a ‘big ticket’ business closely associated with investment banking.
Barclaycard and Africa are also quite distinct businesses, so only the remaining third of Barclays’ business overlaps with domestic high-street bank Lloyds, for example.
Barclays is a leading investment bank in the UK and US, globally the largest markets, stemming from its counter-cyclical acquisition of the US assets of Lehman Brothers. Over 60% of profits come from its fixed interest, currencies and commodities (FICC) business, which ironically is suffering from restored stability in markets. Barclay’s transformation programme is shifting investment into growth areas such as equities, where the bank has been acquiring new corporate brokerage mandates.
High street
UK Retail & Business Banking is the traditional high street banking business. Barclays has 15 million personal customers and 750,000 business customers. More distinctive is Barclaycard, which is the eighth-largest payments business in the world with twice as many customers as Barclays’ retail bank, and in the top three of its chosen markets outside the US. It’s a high return-on-equity business that Barclays aims to grow.
African retail and business banking covers 12 countries serving 14m customers — a tenth of the UK. Including contributions from global businesses, Barclays earned 16% of its income from Africa & the Middle East last year, despite having just 5% of risk assets in the region.
Barclays has the same number of customers in Europe as in Africa, but located in the Latin countries — Spain, Portugal, Italy and France — the region has consistently lost money. It’s being reconfigured to focus on the ‘mass-affluent’ segment with branches, headcount and costs all being axed.
