developing financial capabilities presentation
DESCRIPTION
PERFORMANCE COMPARISON BETWEEN BARCLAYS BANK PLC & LLOYDS BANKING GROUP PLCTRANSCRIPT
PRESENTED BY: Oluwasegun Akande - S11731546
PERFORMANCE COMPARISON BETWEEN BARCLAYS BANK PLC & LLOYDS BANKING GROUP PLC
INTRODUCTION – Performance Measurement in the Banking Sector
This Presentation is Looking at :
Financial Ratio Analysis
Profile of the two Banks
Stakeholders Analysis in Banking Sector Factors Affecting Performance
Measurement in the Banking Sector
Financial crisis and the failure of the UK Regulatory framework
2011 Comparison at a Glance; Barclays Bank PLC & Lloyds Banking Group PLC
Also, Looking at are …
KPIs, Financial & Business Ratios: Comparison between Barclays Banks & Lloyds Banking Group
Investment appraisal techniques in banking sectors
Cost control in banking sectors
Forecasts for Barclays & Lloyds
Recommendations & Conclusion
Compare to other sectors, a strong financial services industry must be built on stable and sound foundations.
A resilient banking sector is of critical economic importance.
UK financial services in 2009 generated a trade surplus of £40bn and professional services firms a surplus of £6bn. UK exports of financial services are 3 times larger than any other country, and 10 times those of the US in 2008
FINANCIAL RATIOS ANALYSISLIQUIDITY RATIOS
Liquidity ratios measure the extent to which assets can be turned into cash quickly
Current Asset Acid Test
PROFITABILITY RATIOS
This determines how much profit a business has made, and then to compare it with previous periods or with other entities.
Return on capital employed Gross profit Mark-up Net profit
INVESTMENT RATIOS
Ratios that are primarily (although not exclusively) of interest to prospective investors.
Dividend yield Dividend cover Earnings per share Price/earnings ratio Capital gearing
EFFECIENCY RATIOS
How efficiently an entity has been managed, i.e. how well its resources have been looked after.
Stock turnover Fixed assets turnover Trade debtor collection
period Trade creditor payment
period
(Dyson 2008)
PROFILES FOR BARCLAYS & LLOYDS TSB
Source: FAME
Source: FAME
Barclays Banks PLC Lloyds Banking Group PLC
Banking Classification UK Retail and Business Banking Retail (Biggest Retail Bank in the UK)
Trade Description A group engaged in the provision of retail and commercial banking, credit card, banking, wealth and investment management services.
Group is involved in a wide range of banking and financial services through branches and offices in the UK and overseas.
Date of Incorporation: October 04, 1971 October 21, 1985
Registered Number: 01026167 SC095000
Registered Office 1 Churchill Place,LondonE14 5HPEngland
The MoundEdinburghLothianEH1 1YZScotland
Total Employees As at Dec 31, 2010
151,300 122,979
No. of Recorded Subsidiaries 352 2,364
Legal Form Public quoted Public quoted. 41% owned by the taxpayer following a massive Government bail-out.
Source: FAME
STAKEHOLDERS ANALYSIS IN BANKING SECTORS
CUSTOMERS Customer
Satisfaction
Competitive Advantage
Customer Perceptions of Value
Corporate Image
Switching Barriers (e.g. transaction costs, learning costs, loyal customer discounts and emotional costs)
Customer Loyalty
REGULATORS
Bank of England (the Bank),
Financial Services Authority (FSA) and
The Treasury
Collectively responsible for financial stability
MANAGEMENT & EMPLOYEES
Financial services employ over 1million people,3.9% of all UKemployment.
Business Strategy formulation & alignment
Risk Management
Corporate Culture
Principle of Engagement
INVESTORS & SHAREHOLDERS
Individual & Institutional
Interest is mainly on the Financial Performance Measurement
Using management’s own measures of success really helps deepen investors’ understanding of progress and movement in business.
(Cohen & Gan 2006)
FACTORS AFFECTING PERFORMANCEMEASUREMENT IN BANKING SECTOR
ECONOMIC ENVIRONMENT
Negative economic conditions place pressure on organizations to increase profitability (Burney, 1999). making it difficult for management to focus on improving and measuring non-financial performance.
TECHNOLOGICAL ENVIRONMENT
technological advancements seem to make banks offer a wider variety of customer services, not only to fulfill the needs of customers, but also to achieve economies of scale and to be competitive.
Emergence of contemporary system such performance measurement matrix (Keegan et al., 1989). SMART pyramid (Lynch and Cross, 1991). the balanced scorecard (Kaplan and Norton, 1992). result and determinants framework (Fitzgerald et al., 1991). The performance prism (Neely et al., 2001) and Comparative business scorecard (Kanji and Moura, 2002).
SOCIO-CULTURAL AND POLITICALENVIRONMENT
Most Banks in the UK are transnational institutions
Adopt consistent Performance measurement practices with international practices.
PRESSURES FORCHANGE
Mimetic pressures
Coercive pressures (e.g. Central bank’s regulatory control, Financial legislations)
Normative pressures (Professionals, Strategic Orientation, the corporate culture & top management.) – Professionals is the most dominant influence
Much Focus on financial measures, such as, Earnings per Share (EPS). Return on Investment (ROI) and Return on Equity (ROE).
(Rahat Munir, Kevin Baird 2008)
FINANCIAL CRISIS AND THE FAILURE OF THE UK REGULATORY FRAMEWORK
EMERGING CONSENSUS ON THE FUNDAMENTAL CAUSES OF THECRISIS
Global economic imbalances;
Mispriced and misunderstood risk;
Unsustainable funding and business models for banks;
Excessive build up of debt across the financial system; and
The growth of an unregulated ‘shadow banking’ system
UK’s ‘TRIPARTITE’ REGULATORYSYSTEM
Bank of England (the Bank),
Financial Services Authority (FSA) and
The Treasury
– collectively responsible for financial stability
THIS SYSTEM FAILED IN A
NUMBER OF IMPORTANT
WAYS
To identify the problems that were building up in the financial system;
To take steps to
mitigate them before they led to significant instability in financial markets; and
to deal adequately with the crisis when it did break, especially during the first part of the crisis in the summer of 2007.
2011 COMPARISON AT A GLANCE
Source: FAMESource: FAME
Lloyds 2011 (£m) Barclays 2011 (£m)
Total Asset
970,546
1,563,402
Total Liabilities
923,952
1,498,232
Shareholder Equity
45,920
65,170
Operating expenses
(10,621)
(20,772)
Net Income
21,123
26,780
Profit (Loss) Before Tax
(3,542)
5,974
Operating expenses Net Income Profit Before Tax
(10,621)
21,123
(3,542)
(20,772)
26,780
5,974
2011 ANNUAL REPORTS (Operating Expenses, Net Income
& PBT)Lloyds 2011 (£m) Barclays 2011 (£m)
Total Asset Total Liabilities Shareholder Equity
970,546 923,952
45,920
1,563,402 1,498,232
65,170
2011 ANNUAL REPORTS (Total Asset, Total Liabilities,
Shareholder Equity)Lloyds 2011 (£m) Barclays 2011 (£m)
KPIs, FINANCIAL & BUSINESS RATIOS
2007 2008 2009 2010 20110
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Barclays (Total Assets) Lloyds (Total Assets)
£ M
illio
n
2007 2008 2009 2010 20110
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Barclays (Income) Lloyds (Income)
£ M
illio
n
2007 2008 2009 2010 2011
-4000-3000-2000-1000
0100020003000400050006000
Barclays (Profit After Tax)Lloyds (Profit After Tax)
2007 2008 2009 2010 2011
Barclays (Total Assets)1,227,58
32,053,02
91,379,14
81,490,03
81,563,402
Lloyds (Total Assets) 353,346 436,0331,027,25
5 991,574 970,546
Barclays (Income) 23,523 21,153 29,094 32,214 33,123
Lloyds (Income) 10,696 9,868 23,278 24,956 20,771 Barclays (Profit After Tax) 5126 5249 3512 4172 3,616
Lloyds (Profit After Tax) 3,288 772 2,827 -320 -2,787
KPIs, FINANCIAL & BUSINESS RATIOS - Profitability Ratios
Lloyds
2010Barclays
2010Lloyds
2009Barclays
2009Lloyds
2008Barclays
2008
Return on Shareholders Fund 0.61 10.27 2.41 8.15 7.17 14.65ROCE 0.22 9.43 2.3 5.28 2.79 7.98Return on Total Asset 0.03 0.41 0.1 0.33 0.19 0.29
Return on Shareholders
Fund
ROCE Return on Total Asset
0.61 0.22 0.03
10.27 9.43
0.41
Profitability Ratio for 2010Lloyds 2010 Barclays 2010
Return on Shareholders
Fund
ROCE Return on Total Asset
2.41 2.3
0.1
8.15
5.28
0.33
Profitability Ratio for 2009Lloyds 2009 Barclays 2009
Return on Shareholders
Fund
ROCE Return on Total Asset
7.17
2.790.19
14.65
7.98
0.29
Profitability Ratio for 2008Lloyds 2008 Barclays 2008
Barclays Bank is a more profitable business compare to Lloyds Banking Group. This performance could be attributed to the management of Barclays Bank PLC. Most time, management of an organization seem to be the difference maker. This could be buttressed by the article on FT.com captioned “Barclays co-heads each get more than £9m” - By Sharlene Goff (March 14, 2012 )
According to FT.com, acquisition HBOS was a bad investment that contributed to their poor performance captioned “Lloyds in £42bn bill from toxic HBOS” - By Patrick Jenkins and Adam Jones (February 26, 2010 10:22 pm)
KPIs, FINANCIAL & BUSINESS RATIOS – Structure Ratios
Lloyds
2010Barclays
2010Lloyds
2009Barclays
2009Lloyds
2008Barclays
2008
Current Ratio 1.12 1.03 0.27 1.05 1.03 1.03Luquidity Ratio 1.12 1.03 0.27 1.05 1.03 1.03Shareholders Liquidity Ratio 0.56 11.18 21.41 1.84 0.64 1.2Solvency Ratio 4.56 3.97 4.21 4.06 2.58 2.01Gearing Ratio 814.52 0 4.67 54.61 157.16 912.12
Curre
nt R
atio
Luqu
idity
Rat
io
Shar
ehol
ders
Liqu
idity
Rat
io
Solv
ency
Rat
io
1.03 1.030.64
2.58
1.03 1.03 1.2
2.01
Structure Ratio for 2008Lloyds 2008
Curre
nt R
atio
Luqu
idity
Rat
io
Shar
ehol
ders
Liqu
idity
Rat
io
Solv
ency
Rat
io
0.27 0.27
21.41
4.211.05 1.05 1.84
4.06
Structure Ratio for 2009Lloyds 2009
KPIs, FINANCIAL & BUSINESS RATIOS – Structure Ratios
STRUCTURE RATIOS
The current ratio & liquidity ratio of Lloyds Banking group in year 2009 show that the group could not have been able to meet its financial obligation. It is clear indication of over trading on their part and this probably have caused the bank a financial crises. Massive business expansion with 100% rise in number of employee from 66,473 to 132,000 could have contributed to this.
The solvency ratio of Lloyds shows that its over dependency on outside sources for long-term financial support.
Curre
nt R
atio
Luqu
idity
Rat
io
Shar
ehol
ders
Liqu
idity
Rat
io
Solv
ency
Rat
io
1.12 1.12 0.56
4.56
1.03 1.03
11.18
3.97
Structure Ratio for 2010Lloyds 2010 Barclays 2010
(Dyson, 2008) (Walker, 2009)
2008 - '07 2009 - '08 2010 - '09 2011 - '10
-50.00
0.00
50.00
100.00
150.00
Asset Trends in %
Total Asset (Barclays) Total Asset (Lloyds)
2008 - '07 2009 - '08 2010 - '09 2011 - '10
-40.00
-20.00
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
Income Trends in %
Total Income (Barclays) Total Income (Lloyds)
GROWTH IN ASSET, INCOME & PROFIT OVER THE LAST 5 YEARS (TRENDS IN %)
2008 - '07 2009 - '08 2010 - '09 2011 - '10
Total Asset (Barclays) 67.24 -32.82 8.04 4.92
Total Income (Barclays) -10.08 37.54 10.72 2.82
Profit (Barclays) 2.40 -33.09 18.79 -13.33
Total Asset (Lloyds) 23.40 135.59 -3.47 -2.12
Total Income (Lloyds) -7.74 135.89 7.21 -16.77
Profit (Lloyds) -76.52 266.19 -111.32 -1151.94
KPIs, FINANCIAL & BUSINESS RATIOS – Trends in Percentage
KPIs, FINANCIAL & BUSINESS RATIOS – Trends in Percentage
2008 - '07 2009 - '08 2010 - '09 2011 - '10
-1400.00
-1200.00
-1000.00
-800.00
-600.00
-400.00
-200.00
0.00
200.00
400.00
Profit Trends in %
Profit (Barclays) Profit (Lloyds)
(Milis et al. n.d.)(ACCOUNTANTS n.d.)
TRENDS IN PERCENTAGE
Except for the Asset trend that seem to be getting stable for Lloyds banking Group, all others which include income and profit trends are noise-diving.
Although the income trend for Barclays Bank is also noise-diving but there is a relative stability in its profitability ; a good cost saving strategy and effective risk management can be deduced.
INVESTMENT APPRAISAL TECHNIQUESThe most important investment appraisal techniques are concerned not only with what cash flows will arise in the future as a result of the project, but also with the timing of those cash flows. For what reasons might earlier, perhaps smaller, forecast cash inflows be preferred than later, perhaps larger, cash inflows?
INVESTMENT DECISION-MAKING PROCESS
Origination of proposals
Project screening.
Analysis and acceptance
Monitoring and review
TECHNIQUES
Net Present Value
Accounting Rate of Return
Payback Period
Internal Rate Of Return (Graphical Approach & Interpolation Method)
INVESTMENT/SPROJECTS IN A BANK & CATEGORY OF BENEFITS
Banks could be involved in any type of investments/projects; IS services investment, Business Acquisition and so on are common to Banks
Use of these Traditional techniques might not be sufficient to evaluate an investments/projects such as IS service
Category of benefits
Tangible benefits
Intangible benefits
(Milis et al. n.d.)(ACCOUNTANTS n.d.)
COST CONTROL IN THE UK BANKING SECTORCost control has taken on a new priority at the UK’s banks. Since the crisis, market participants have been grappling with cost to income ratio strains and a more challenging regulatory and competitive landscape. And with revenue growth becoming increasingly difficult to source, bank executives have stepped up their focus on cutting costs wherever possible in a bid to make their organizations more efficient and agile.
COST CONTROL IN THE UK BANKING SECTOR
The problems with the cost efficiency ratios stem from a combination of factors on both sides of the cost to income equation:
Banks are struggling to grow top line revenues across many areas of their businesses.
growth in revenues, a number of institutions are seeking to expand their emerging market operations.
Catalogue of national and international regulatory initiatives in the wake of the financial crisis is continuing to add to the cost line.
Payment Protection Insurance (PPI) – as banks’ recent provisions demonstrate
Lastly, the Government announced in February, 2012 that it would increase the bank levy to £2.5 billion this year,
FORECAST FOR BARCLAYS BANK & LLOYDS BANKING GROUP
BARCLAYS BANK PLC LLOYDS BANKING GROUP PLC
Asset Quality Barclays is ready to remain confident on credit asset quality
Likelihood of improved asset quality as a result of the accelerated efforts to reduce risk-weighted assets (RWAs) and improve the funding and risk profiles
Cost Saving Barclays has identified up to £2 billion in potential savings by 2013, with a savings target of £1 billion at Group level
Lloyds is targeting annual cost savings of £1.5 billion per annum in 2014 (£1.7 billion of run-rate savings by end 2014).
Market Forecast As of Apr 20, 2012, the consensus forecast amongst 3 polled investment analysts covering Barclays PLC (ADR) advises investors to purchase equity in the company. This has been the consensus forecast since the sentiment of investment analysts improved on Apr 14, 2012. The previous consensus forecast advised that Barclays PLC (ADR) would outperform the market.
As of Apr 20, 2012, the consensus forecast amongst 31 polled investment analysts covering Lloyds Banking Group PLC advises that the company will outperform the market. This has been the consensus forecast since the sentiment of investment analysts improved on Apr 05, 2012.
RECOMMENDATION & CONCLUSION
RECOMMENDATION
Lloyds: Proper investment appraisal should be carried out subsequently in any acquisition and investment.
Lloyds & Barclays: Cost saving campaign within the organization that will sensitize all employees
Barclays: Continuous good relationship with the clients, risk management and improving the strategic momentum of the Bank
Aside the Financial crises which affected all banks and the whole economy at large, the investment decision of Lloyds Managements in the acquisition HBOS caused the poor performance. This has greatly increased the level of nonperforming assets and elevated Lloyds' credit risk exposure and impairment provisions.
Lloyds has a recognizable underlying earnings power, but considerably weak profitability because of its low net interest margin, elevated expense base, and most importantly high credit costs
Barclays Bank PLC seem to have a better management staff with a sound business strategy. Barclays Bank was ranked amongst the top performers in the banking industry globally. Creating a good relationship with the clients, risk management and improving the strategic momentum of the Bank
REFERENCESBOOKS & JOURNALS Cohen, D. & Gan, C., 2006. CUSTOMER SATISFACTION : A STUDY OF BANK CUSTOMER RETENTION IN NEW
ZEALAND. Most, (109).
Dyson, J.R., 2008. Ratio analysis. ACCOUNTING FOR NON-ACCOUNTING STUDENTS Seventh Edition John R. Dyson ACNA_A01.QXD 2/20/08 7:10 AM Page iii, 7th Editio, pp.223-232.
KPMG, 2011. UK Banks : Performance Benchmarking Report. Europe.
Rahat Munir, Kevin Baird, S.P., 2008. CHANGES IN PERFORMANCE MEASUREMENT SYSTEM IN BANKING SECTOR : AN ANALYTICAL FRAMEWORK Rahat Munir , Kevin Baird , Sujatha Perera. Management Accounting, pp.1-24.
TREASURY, H., 2010. A new approach to financial regulation:,
Walker, J., 2009. 6.7 Assessing liquidity 170. Accounting in a Nutshell: Accounting for the Non-specialist Third Edition Janet Walker AMSTERDAM • BOSTON • HEIDELBERG • LONDON NEW YORK • OXFORD • PARIS • SAN DIEGO SAN FRANCISCO • SINGAPORE • SYDNEY •.
WEBSITES & PORTALS
http://fame2.bvdep.com/version-201244/SSOLogin.serv?product=fameneo&loginpostback=true&ssotoken=7P0QjUmCOG5UE60jtsv3xQ%3d%3d accessed April 03, 2012 at 12:43pm
http://group.barclays.com/Investor-Relations/Financial-results-and-publications/Annual-Reports accessed April 16, 2012 at 16:57pm
http://2011.lloydsbankinggroup-annualreport.com/ accessed April 16, 17:08pm
http://www.ft.com/cms/s/0/5ccc7970-22a8-11df-8942-00144feab49a.html#axzz1sbaH1sFk accessed April 20, 2012
http://www.ft.com/cms/s/0/0d08b136-6e02-11e1-baa5-00144feab49a.html#axzz1sbaH1sFk accessed April 20, 2012
THANK YOU