It looks like things weren't all bad for Barclays (
BCS
) in 2012. The U.K.-based banking group which has been under severe
criticism since June 2012 when it was fined $451 million fine by
British & American regulators over its involvement in
manipulating the LIBOR (see
Barclays Paying $451 Million in LIBOR-Fixing Case, Who's Next?
), did quite well to top the list of investment banks in the U.K.
for 2012.
Barclays roped in £184 million ($297 million) in fees
by providing advisory & underwriting services to companies
in the region to get ahead of Goldman Sachs (
GS
) and
JPMorgan
(
JPM
) who held the first and second positions in 2011. These
results would definitely be a shot in the arm for Barclays' top
management who have been warding off strong demands from investors
as well as regulators to substantially shrink its investment
banking arm in the wake of the LIBOR scandal.
We are in the process of revising our
$15 price estimate for Barclays stock
, in view of various changes to its business model announced in the
recent past.
See our full analysis for Barclays stock
The Strategy Or The Economic Climate?
So what exactly is responsible for the improvement in Barclays'
U.K. investment bank rankings - the new course charted by the new
heads, or is it just because of an improvement in the overall
economy? We believe it is a bit if both. Like most of its
competitors, Barclays is also cutting down on its investment
banking functions around the globe and initiated a move to trim
2,000 jobs in mid-December. But the management stood its ground
against demands to reduce investment banking operations to a
fraction of its former self - a decision that looks justified to a
good extent as of now.
No doubt, the steady improvement in the economic climate for the
Eurozone region in particular and the world in general also have a
significant hand in boosting Barclays' fee revenue figures. As we
mentioned in an earlier article titled Global M&A Activity
Reaches 4-Year High In Q4 2012; More To Come In 2013, the last
quarter of the year has been the best since Q3 2008 in terms
of global merger & acquisition (M&A) activity and the
period has also seen a healthy improvement in the demand for debt
and equity underwriting services. Corporates who had been shelving
plans to raise additional capital or to use existing capital for
acquisitions in the wake of the economic downturn are now
revisiting those plans. And as these activities increase, the
companies rope in investment banks like Barclays to help
materialize them.
Why It Matters To Barclays
Barclays' advisory & underwriting services fees represents
roughly 7% of Barclays annual revenues, and our analysis of the
bank shows that this is approximately how much value it contributes
towards Barclays share value. Any increase in the total value of
deals that the bank takes part in proportionately increases the fee
revenue the investment banking division generates. So as the size
and number of deals increase, the total revenue and as a result the
estimated share value for Barclays also goes up. You can understand
the exact impact on the share price by making changes to the chart
above.
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