Is A Slimmed-Down Barclays PLC A More Attractive Buying Proposition?

Barclays (LSE: BARC) (NYSE: BCS.US) announced today the sale of its retail, wealth management and corporate banking businesses in Spain to peer Caixabank for a total consideration of €800m. In addition, the bank announced today the sale of its UAE Retail Banking business to Abu Dhabi Islamic Bank. 

These sales are part of Barclays’ long-term plan, designed to shrink the bank down to its core operations. What’s more, the disposal of these businesses have raised some much needed capital for the group, which should help Barclays meet its targeted capital ratios.

Hefty losses

Unfortunately, Barclays has revealed that it is likely to report a post-tax loss of £500m on the sale of the Spanish business. However, management estimates that the sale of the UAE business will generate a pre-tax gain of £119m — so it’s not all bad news.

Moreover, as well as receiving around £750m from the sales of the two businesses, Barclays is expecting to reduce its leverage exposure by around £15bn. Including the cash from the sale, Barclays’ balance sheet will be more than £16bn stronger after the deal completes. 

This is great news for Barclays’ shareholders, as the strength of the bank’s balance sheet has been of concern for some time. 

Non-core

The sale of Barclays’ Spanish business is part of Barclays’ long-term plan exit non-core businesses around the world. The ‘non-core cluster’ as it is known is a selection of businesses around the world that Barclays is trying to sell off, in an attempt to reduce risk and increase performance. 

That said, Barclays has not divested its whole Spanish business. The bank’s well-known Spanish Barclaycard operations and investment bank were not included in the deal.

So, the good news for investors is that management has only sold off the worst parts of the Spanish operation, keeping the lucrative Barclaycard brand within Spain under the Barclays umbrella.

Time to buy?

This news does boost the investment case for Barclays. While the bank does stand to report a loss from the transaction, the reduction in leverage is a long-term positive. Further, retreating from the UAE will almost certainly reduce Barclays’ regulatory burden, which is likely to push down costs. 

Still, as usual, I strongly recommend that you conduct your own analysis before you make any trading decision. Indeed, Barclays does look to be a better investment after today’s deal, although over the longer term, the bank has plenty of work to do before it can be considered to have returned to health.