Barclays Turns a Loss Into a Gain

Money Piggy Bank“We intend to change what Barclays does and how we do it and have set out clear commitments against which our progress can be measured,” said Barclays (NYSE:BCS) group chief executive Antony Jenkins in a statement released on Tuesday.

Like most major financial institutions, Barclays has faced, and will continue to face, enormous pressures from regulators, the public, and the economy because of the global financial crisis and subsequent scandals, including the manipulation of benchmark interest rates. As a result, many major banks have suffered billions in losses and settlements, and have initiated aggressive restructuring programs aimed at reducing costs, streamlining operations, and sweeping the skeletons out of the closet.

“Our plan is built on a rigorous review of 75 distinct business units to determine not only their ability to generate an appropriate and sustainable return on equity, but also their strategic attractiveness, including their impact on Barclays reputation,” continues the company’s strategic review statement. All said, the bank will be reducing its headcount by at least 3,700, for which it will incur a restructuring charge of nearly 500 million pounds ($779.90 million) in the first quarter of 2013.

Other financial commitments include…

Other financial commitments include a reduction of the bank’s total cost base by 1.7 billion pounds ($2.65 billion) to a total of 16.8 billion pounds ($26.2 billion) by 2015, delivering a cost-to-income ratio in the mid-50s.

The announcement of the strategic review comes on the heels of the bank’s 2012 results, which showed a net loss of 1 billion pounds ($1.56 billion) for the year, largely attributed to an 835 million pound ($1.3 billion) net loss in the last quarter. The bank has set aside about 1 billion pounds ($1.56 billion) for legal costs related to its allegedly fraudulent behavior when selling complex financial products.

It’s unclear exactly what damages Barclays will be held accountable for. Regulators have hit peers like RBS  Group (NYSE:RBS) with multi-million-dollar penalties for its involvement in the LIBOR scandal. RBS was fined $610 million recently, while UBS (NYSE:UBS) was fined $1.5 billion, ostensibly because it had greater involvement in the ordeal.

Investors have reacted positively to Barclays’s ambition to cut costs and turn its image around. Shares climbed as much as 7.5 percent in morning trading on the New York Stock Exchange. Big banks in general have performed well over the past few months, even while they fend off record losses, litigation, and public backlash. At the end of the day, investors are quicker to shrug off poor image and past blunders when a firm presents a clear and competent strategy to recover, grow, and return value to shareholders.

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