Barclays: Crushed

Sometimes it is a wonder the S&P is not trading at 400 instead of 800. Barclays (BCS) - for American readers - is one of the largest UK banks. The UK, as you know, decided to follow the US model of light regulation and massive "financial innovation" - you can see it's gotten them in the same pickle we're in. It looks like every major bank in the two most "innovative" (i.e. thinking of ways guys with MBAs can act like the snake oil salesmen they are) countries is going to be in the hands of the government. (Emphasis mine:)

• Britain's Barclays PLC was the worst hit stock.... as dismal fourth quarter earnings from Bank of America and Citigroup Inc. and the nationalization of Anglo Irish Bank PLC (AIB) fueled speculation other banks will post bigger than anticipated losses that may eventually require government assistance.
• "It's become abundantly clear by the results and the AIB news that the world's banking sector needs more capital and the market is speculating that Barclays will need more capital," said David Buik of BGC Partners in London.
• Barclays opted not to take government cash during last October's 37 billion pound bailout ($55 billion) of the banks and instead raised 7 billion pounds from private investors in the Middle East. Earlier this week, the company announced plans to axe 4,200 jobs to cut costs, further stoking fears that the bank was short of cash.
• Other British banks suffered late selling, with Royal Bank of Scotland, nearly 60 percent owned by the government, down 13 percent and Lloyds TSB down about 5 percent. The losses came on the day that a ban on short-selling of shares was lifted in Britain.

We're literally going to have armies of zombie banks in the two countries that drive Western finance (but we're not Japan, mind you, so don't you dare imply it).

The laughable thing about all this is as the banks lobbied for less and less regulation, they pointed to each other (New York would point at London, and London at New York) and say "if you give us regulation, we'll lose business to the other city!" There is almost sweet justice to this - if it wasn't costing us our economies. I just am sickened that so many executives and top honchos (the used car salesmen) made so much money that they get to keep, while two countries' financial systems implode.

More importantly to me, who is going to sponsor the English Premier League??

These truly are times I hope future politicians remember when the next generation of bankers whisper sweet nothings about how regulation is destroying their profit potential and in fact the entire potential of the national economy. The realist in me knows sometime 5+ years from now whatever regulation is now enforced will be loosened with the same sorry excuses they used the past decade... regulation is stifling our ability to innovate. Money talks - that's all that matters in the long run. You pay - you shape the rules. Cramerica.

A sorry state of affairs. One day, I hope someone writes the book on the sordid dealings between these financiers and their lobbyists and the politicos. Maybe Americans would get mad... or protest... or... nah, nevermind. Football is on this weekend; we have priorities.

Comments

[mrxg4:]

"Britain's Barclays PLC was the worst hit stock.... as dismal fourth quarter earnings from Bank of America and Citigroup Inc. and the nationalization of Anglo Irish Bank PLC (AIB) fueled speculation other banks will post bigger than anticipated losses that may eventually require government assistance."

Anglo Irish Bank is not the same as Allied Irish Banks (AIB). Anglo Irish Bank was nationalized, while Allied was not.

Jan 16 02:30 PM

[donzelion:]

Here here!

Much of the problem in the "financial SERVICES sector" is that nobody in that sector wants to offer services, but rather, to "sell financial products." For products, the relationship ends for the most part after the transaction - no ongoing duties continue. For services, the relationship continues long past the initial transaction - instead of being judged by how much revenue one extracts, one also has duties to do it all honestly (or else the customers walk away for good).

The financial sector fixated upon selling "financial products" in the 80s and 90s - and in particular, upon rewarding people for sales. Banking dropped integrity and prudence in favor of sales volume - and the rest is...well, what we're just starting to work our way through.

Jan 16 03:29 PM

[User 265631:]

Wonder what the average IQ is of these traders that crush these bank stocks? Think its anywhere near that of those "snake oil salesman" banker MBAs? Doubt it. Yet, its those dumbass traders who make blanket assumptions and speculate around companies' health based on bearish rumors - they are the ones crushing the bank stocks. They are the reason why these bankers need to continue to raise capital after their stocks gets crushed. We've let the inmates run the jail. Traders = monkeys. They don't understand fundamentals, don't care to fully understand balance sheets (read: lazy) and continue to over-react to everything in today's jittery market. They are a major reason for the downward cycle in asset values. And we can thank them for ultimately destroying the banking sector and eliminating massive amounts of wealth. Well done.

Jan 16 03:42 PM

[User 338847:]

Are there identifiable 'bad guys' in this drama? Seems whoever invented and promoted derivatives was the crack dealer, but it also seems that every finanial institution was a happy and willing crack addict. With trillions gone, who goes to jail? Who hangs? Bernie Madoff is so far the only one with a target on his back, but there must be hundreds of others ...

Jan 16 03:50 PM

[morph366:]

Re User 265631
You ask whether the dumbass traders who are wrecking our financial system understand balance sheets. I think the question would be better put to the people that run the banks.
Citigroup's problems, among others, stemmed from the fact that nobody understood the risks they were taking. The bank is not only too big to fail but too big to understand and manage.

Jan 16 04:08 PM

[KGY:]

Whatever. If I walk up to you tomorrow, yes you and ask for $3,000, would you hand it over? (even if you had it). So what makes you think its o.k not to bash the whole idea of credit cards. Why are derivatives the only devils here. How come no one is honestly talking about zero down this and that...? I have not seen an honest confrontation of this financial mess. There are only two issues. Too much inventory and a market that can't afford the inventory at the sticker price. How did Henry Ford solve the problem? There are only two reasonable solutions. Lower inventory prices or raise incomes significantly. The same people that produced all these goods that are not selling needed to be paid enough to afford the goods if not for themselves for their entire neighborhood. After all maybe the problem is Rick Wagoner not buying 20,000 cars with he millions he's making at GM.

Jan 16 04:57 PM

[MJJP:]

It's true Barclays stock was hammered today but why? The article pointed out problems at other banks and everyone is assuming that Barclays is having the same problems. Remember as you pointed out in your article Barclays DID NOT take the money. This is a gutsy move on their part and shows they have what it takes to run a bank. Take a look at their financials. They are over 400 billion in debt but have more than that in hard cash. It was announced today they bought UBS commodities. This bank is not in trouble and they are not going out of business.

Jan 16 08:09 PM

[drbob66:]

I hope you're right...I bought today @ 6.25.


On Jan 16 08:09 PM MJJP wrote:

> It's true Barclays stock was hammered today but why? The article
> pointed out problems at other banks and everyone is assuming that
> Barclays is having the same problems. Remember as you pointed out
> in your article Barclays DID NOT take the money. This is a gutsy
> move on their part and shows they have what it takes to run a bank.
> Take a look at their financials. They are over 400 billion in debt
> but have more than that in hard cash. It was announced today they
> bought UBS commodities. This bank is not in trouble and they are
> not going out of business.

Jan 16 08:58 PM

[Victhom:]

I can't believe i got 5000 shares at $6.00 today...Read this...LOL


UPDATE: Barclays Sees '08 Pretax Profit Above Estimates
Article
Comments
more in Business »
(Updates with Barclays' statement)

By Marietta Cauchi

Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--Barclays PLC (BCS) said Friday it will report a profit before tax for 2008 higher than analysts are expecting.

The bank made the statement after its shares plummeted in London trading Friday, shedding some 25%. The stock narrowed that gap in U.S. trading, closing off 14% at $7.25.

Barclays said its 2008 profit before tax, after reflecting all costs, impairment and market valuations, would be "well ahead of the GBP5.3 billion consensus estimate of sell-side analysts."

The company expects to report results on Feb. 17.

Jan 16 11:31 PM

[venividivici:]

Yeh who is going to sponsor the Premier league with its grotesquely bloated player pay packets. The most famous club, Manchester United is sponsored by AIG. Well imagine that!! Where are they getting the money?
I notice MU's top brazilian striker, Ronaldo (?) trashed his $400,000 Ferrari on the way to training. No problem he has another 10 or so back home in the garage.
Is it just me thinking it or is this "Sodom and Gomorrah" society heading for an almighty fall.

Jan 17 02:40 AM

[mbr:]

One way for the taxpayers to stop the recurring banking scams is to stop investing in shares of financial firms, directly or indirectly.

Jan 17 05:14 AM

[morph366:]

Re mbr
Solution you propose doesn't help as the the government will be investing in banking shares on your behalf as a taxpayer.

Jan 17 05:24 AM

[mbr:]

This is not a solution but only a contribution to reduce the problems and for the future.

Jan 17 06:23 AM

[Crocodilian:]

On Jan 16 03:50 PM User 338847 wrote:

> Are there identifiable 'bad guys' in this drama?

Yes, but more importantly there were identifiably bad _choices_ about how to run the system. Institutional behavior is constrained by what society permits its institutions to do . . . we made some terrible choices in banking.

The repeal of Glass-Steagall -- which had served us very well for 60 years-- and the Commodity Futures Trading modernization acts come to mind as particularly disastrous choices.

But basically, the system needs a disaster every so often to remind everyone that risk is real. When you've gone 70 years from the Depression, and when every market reverse is seen as a buying opportunity, then people won't be cautious enough.

Jan 17 08:48 AM

[OldLimey:]

"More importantly to me, who is going to sponsor the English Premier League??"

The Fed, of course.

venividivici: as a Man U. fan for over half a century I just want to take you up on two points.

1. Ronaldo is Portuguese (actually, Madeiran) not Brazilian.

2. The AIG sponsorship will almost certainly give United access to TARP 2. Won't it?

Jan 17 09:27 AM

[PROXIMO:]

Quit whining. The traders aren't the ones who exposed the banks to absurd amounts of leverage. The traders aren't the ones who took obscene annual bonuses because they could. The traders aren't crawling to the government, hat in hand, asking for more and more taxpayer money to cover their inept management. Blaming traders for this quagmire is an enormous stretch.


On Jan 16 03:42 PM User 265631 wrote:

> Wonder what the average IQ is of these traders that crush these bank
> stocks? Think its anywhere near that of those "snake oil salesman"
> banker MBAs? Doubt it. Yet, its those dumbass traders who make blanket
> assumptions and speculate around companies' health based on bearish
> rumors - they are the ones crushing the bank stocks. They are the
> reason why these bankers need to continue to raise capital after
> their stocks gets crushed. We've let the inmates run the jail. Traders
> = monkeys. They don't understand fundamentals, don't care to fully
> understand balance sheets (read: lazy) and continue to over-react
> to everything in today's jittery market. They are a major reason
> for the downward cycle in asset values. And we can thank them for
> ultimately destroying the banking sector and eliminating massive
> amounts of wealth. Well done.

Jan 17 11:11 AM

[Victhom:]

Shares: BP, BA and Barclays are among the Telegraph's picks for 2009
Despite an increasingly bleak outlook for the coming year, our team of fearless business writers believes there are plenty of profits to be made in the markets

Last Updated: 7:37AM GMT 05 Jan 2009

Previous1 of 6 CompaniesNextPremier Foods
Barclays
Land Securities Group
British Airways
BP
Aberdeen Asset Management
Mark Kleinman:

Premier Foods

If the recession is only just beginning to bite, then in the early part of 2009, Premier Foods, the owner of Hovis and Mr Kipling cakes, is likely to struggle with many others.

Saddled with a huge debt mountain to refinance and a large pension deficit, its share price collapse last year
was only unremarkable because so many other household names have experienced the same. But Premier has a stable of brands which include some of the best-known in Britain, and balance sheet aside, is not at all badly-run. Consumers will, as they stay at home more, seek solace in decent-quality foods, which puts Premier in a decent position (as does the vague possibility of a takeover at a premium to the current share price).

This is a risky bet, however, not least because there is the potential of a dilutive capital-raising in the early months of the year; indeed, any significant rise in the share price may not feed through until the back end of this year, or beyond.

Louise Armitstead

Barclays

Financial stocks may not yet have been fully punished but Barclays, whose shares tumbled nearly 70pc in 2008, is in pole position for recovery.

While RBS and the newly combined HBOS/LTSB face the inevitable slowdown with a pressurised Labour Government as its main shareholder, Barclays has remained crucially independent.

The part-nationalised banks are likely to have to focus on the gloomy domestic markets, while Barclays' new investors from Qatar and Abu Dhabi have said they are committed to helping the bank grow internationally, particularly in their oil-rich backyards.

In the other direction, Barclays snapped up Lehman Brothers' American assets in September catapulting it into one of the biggest banks in the world. But even if these benefits take time to come through, investors will also be attracted to Barclays' ability to pay a dividend, which chairman Marcus Agius has said the bank is planning to start paying again in the second half of this year.

Jan 18 03:28 AM

[Keith Labre...:]

There is plenty of blame to go around.

However, one stands out in particular.

The Credit Rating agencies were NOT up to the task of properly assessing risk, but went ahead and did it anyhow. And did it wrong. In effect, they said 'don't worry, we can and are doing the ratings properly, and though it may not seem quite right, TRUST US, these instruments really ARE SAFE.' Well, not so fast...

I believe it was Moody's who first found a serious error in their risk-assessment model. Instead of fixing it, instead of publicizing the error (even to their mis-directed customers) they then keept it secret, and went on for near about a YEAR continuing to use the bad model. Untold customers bought ever more trashy derivatives (mainly tranches of Mortgage Backed Securities) that had been given AAA ratings by these supposed watchdogs, when a ZZZ rating was more appropriate. All the while, "Trust Us, Trust Us!"

These instruments are extrordinarily complex, and were kept opaque to the buyers through prospectuses of 20,000 pages in some cases. If your company is buying several of these a day, who is going to read and analyze each and every one? That's right, no one. Except, the Rating Agencies who are paid to read and analyze these for the benefit of others, like the buyers. They are supposed to be brain-trust-specialist... in that sort of thing. They failed miserably, would you not agree?

Mistakes are one thing, but cover-ups and failure to correct are criminal, to my way of thinking.

Yes, every bank could have hired enough genius analysts to dissect each of these things, duplicating the function of the Ratings Agencies, but my point is, is that realistic? Short Answer: No.

So the world went on happily buying AAA-rated "safe" instruments, and in the face of such demand, the financial producers went on happily constructing and selling them. Where did they get the loans to do so? From the mortgage lenders, who were in effect told, 'We'll buy all you can shove our way ! Don't worry if your borrower is a little weak, his loan will be packaged in such a way with so many other good loans with such financial protections built into the package, that we can still take all your mortgages, package them into AAA-rated MBSs, and sell the good parts easily."

All fine and dandy, except in reality the AAA ratings only applied to certain few Top Select slices of the bundle, and not the fat middle. These deserved a Junk rating, but were awarded AAA ratings instead. At first, this may have been unwitting, but after the ratings agency(ies) discovered their gross error, WHY did they not fix it immediately? WHY did they not tell anyone? Or did they, and it was hushed up? Somebody help me with this!

WHY did the Investment Banks go on at the height of the mortgage boom assuring all that "Oh yes, there may be some Junk slices of these MBSs, and there may be a few bad mortgages sprinkled in even the best of Tranches (some loans always go bad, after all), but the ones YOU are buying are AAA." If they believed the ratings agencies, who is at fault? If not, why did they sell the darn things as AAA-rated and safe? Would that not qualify as fraud? Is that not aiding in the peddling of poisoned rations? Is that not covering up for your customers, the MBS-makers, who pay you to assign ratings? Is there a confilct of interest here? Methinks MAYBE so. Someone should have an in-depth lookie-see, no?

And yet, we are not hearing about this in the news. There is apparently no one being held to account for this egregious behavior, if it is in fact true.

Has anyone else out there heard this? At the moment I cannot recall the [believed reliable] source where I got this juicy nugget, but maybe some of you can. A little help would be appreciated.

Of course, the time for blame may not be right now. Our world financial system is in great danger. Once it is stabilized, maybe that's the time. We must make sure these things are not fgorgotten as the responsible parties slink away with their multi-multi-millions in ill-gotten bonuses and other gains.

On Jan 16 03:50 PM User 338847 wrote:

> Are there identifiable 'bad guys' in this drama? Seems whoever invented
> and promoted derivatives was the crack dealer, but it also seems
> that every finanial institution was a happy and willing crack addict.
> With trillions gone, who goes to jail? Who hangs? Bernie Madoff is
> so far the only one with a target on his back, but there must be
> hundreds of others ...

Jan 18 06:19 PM