) is contemplating a retreat from trading in agriculture
commodities, according to a Reuters report. The move comes as the
company gears up for a strategic revamp of its overall business
as well as to avoid any threat to its reputation.
Notably, trading in agricultural commodities has received much
criticism in the recent years as the speculation activity has
been blamed for a shoot up of prices. This has had severe
consequences in the undeveloped countries, leading politicians as
well as common people to raise their voices in protest.
As a matter of fact, a number of scandals has hit hard
Barclays in recent times, most notable being the payment of a
penalty for manipulating Libor rates earlier this year. However,
to recoup its lost reputation amidst a challenging macroeconomic
scenario, tougher regulatory environment, as well as stricter
capital norms, the company has already initiated a thorough
review process under the new Chief Executive, Antony Jenkins.
Each business line is being reviewed and its potential impact on
the company's reputation is analyzed.
Apart from this crop trading business, Barclays' tax advisory
business has gathered much criticism and though the two unit
contribute well to the company's revenue, their potential risk to
the company's reputation might lead to the termination of such
Over the past several years, Barclays,
Deutsche Bank AG
JPMorgan Chase & Co.
The Goldman Sachs Group Inc.
) have ruled the commodities trading business. Barclays has
generated significant revenue from its commodities trading
business. However, in the recent past, turnover in this business
has declined for the macroeconomic environment and further
regulations are expected to restrict the growth prospects of this
We believe that in a challenging operating environment with
revenue headwinds, the reputation of any company is of utmost
importance from a competitive point of view. Therefore, reviewing
the crop trading business based on reputational aspects is a
strategic ploy on Barclays' behalf.
In addition, considering the fact that this business consists
of a lesser fraction of the overall commodity trading business,
the impact on the company's top line would be insignificant.
Therefore, for Barclays, which currently retains a Zacks #3 Rank
(implying a short-term Hold recommendation), there are fewer
opportunities for estimate revisions in either direction.
Further, we think that any announcement of a major overhaul of
Barclays' business might push up its estimates going forward. One
of Barclays' rivals,
) has announced a major revamp of its business in the recent
past, including the split of its investment banking unit and
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