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Barclays Disappoints… But Lays Out A New Plan

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What's going on?

Barclays, the major British bank, saw its shares decline more than 8% on Tuesday as it decreased the amount of money it pays out to shareholders (a.k.a. its dividend).

What does this mean?

The new CEO, Jes Staley, outlined a new vision for the bank. Barclays is going to slim down and focus on what it deems are its core markets: the US and the UK. It’s going to sell its African business, which was once viewed as a major source of potential growth. Instead, it will focus on serving traditional retail customers (like you and me) in the UK, as well as credit card customers and businesses primarily in the UK and US. The idea is that by focusing on its core competencies, Barclays will be able to make a better return for its shareholders – something it hasn’t been able to do, as illustrated by the lower dividend.

Why should I care?

The bigger picture: Barclays thinks it’s worth more than the market does. Just like normal businesses, banks own things (called “assets”), except instead of them being big pieces of machinery, banks’ assets are loans made to customers (amongst other things). In theory, a company shouldn’t be worth less than the combined value of all the assets that it owns. But, especially in Europe, that’s become the norm for banks. Part of the reason is probably that investors don’t think banks’ assets are worth what they say they are.

For the stock: Barclays’ stock is languishing around levels not seen since 2012. Its chairman, John McFarlane, has a history of turning around struggling financial institutions. Now that the new CEO has outlined the plan to slim down and shape up, it’s time for Barclays to execute.

Originally posted as part of the Finimize daily email.

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