Barclays (LSE: BARC) (NYSE: BCS.US) has surfed a tidal wave of bad publicity over the last few years, fuelled by public resentment of high-profile investment bankers like Bob Diamond, along with the fallout from dodgy practices such as LIBOR manipulation, and PPI mis-selling.
Although it has been a tough period for the bank, I reckon most of this is just noise, and should be ignored by serious investors, who need to look beyond Barclays’ investment and UK retail banking operations.
Structural growth
The image many western investors have of an Africa — civil wars, dictators and famine — is fast becoming outdated, except in a handful of countries. In sub-Saharan Africa, many countries now have fast-growing market economies and rising personal incomes.
Barclays has operations in Botswana, Mauritius, Mozambique, Ghana, Nigeria, Kenya and Tanzania, as well as South Africa, providing it with in-depth exposure to most of Africa’s largest and fastest-growing economies.
Ghana and Tanzania both recorded GDP growth of around 7% in 2012, for example, while even troubled South Africa, the region’s largest economy, managed to outperform Europe and the US with 2.5% GDP growth last year.
Barclay’s reported a 59% rise in pre-tax profits for its African division during the first nine months of this year, and while these profits only totalled £344m, I was encouraged to see that the bank’s loan impairment rate dropped from 2.0% to 1.3% (it’s 0.7% in Europe), while its return on average risk-weighted assets doubled from 0.6% to 1.1%.
It’s early days for Barclays in Africa, but I believe the bank’s investment in the region will pay generous dividends over the next decade.
My flexible friend
Barclaycard is a household name, but somehow, investors often seem to ignore it when assessing Barclays’ performance. That’s a mistake, in my view; although Barclaycard has been tainted by the PPI scandal, it contributed around 20% of the bank’s income during the first nine months of this year, and is one of the bank’s most profitable divisions.
Barclaycard recorded a 9% increase in loans and advances last year, and has delivered an impressive 19.6% return on average equity so far this year, beating its closest internal rival, Barclays’ UK retail bank, which only managed a return of 13.3%.
Barclaycard is also Barclays’ lowest-cost operation, with an adjusted cost-income ratio of just 41%, compared to 62% for its UK retail banking unit.