Is Barclays plc the next Royal Bank of Scotland Group plc?

To most investors, especially those in the younger generation, the financial crisis seems like a distant memory.

Indeed, even though the crisis only began to unfold around eight years ago, the monumental changes to both the world and the financial services sector that have occurred since 2009 have helped push the crisis into the history books.

However, while the world around them has changed, big banks such as Barclays (LSE: BARC) and Royal Bank of Scotland (LSE: RBS) have struggled to change with the times, and they’re still trying to clean up the mess from the 2008 crisis.

Struggling to make progress 

Unfortunately, every time Barclays seems to take a step forward it’s then followed by two steps back. 

Since 2008 it appears as if the bank has been undergoing constant restructuring, cutting tens of thousands of jobs, selling off non-core divisions and building a bad bank to shed non-core and distressed assets. And every time Barclays embarks on one of these restructuring programmes, the bank’s management lays out a set of optimistic forecasts, which it usually fails to meet. 

For example, every year since 2012 Barclays has failed to meet City earnings estimates, which are themselves based on targets set by management. It’s not as if these objectives have been particularly high either. Management has been consistently lowering the bar but still Barclays has failed to meet its goals. For the year ending 31 December 2016, analysts expect Barclays to report earnings per share of 15.1p, down 9% year-on-year and more than 40% below the figure of 25.7p per share reported for full-year 2011.

A better track record 

Surprisingly, when it comes to the question of which bank has the better history of meeting earnings targets set by management, RBS has a better track record than Barclays. In 2014 the bank met earnings expectations, while in 2015 the bank exceeded expectations reporting underlying unadjusted earnings per share of 35.3p compared to the consensus estimate of 26p per share. 

Still, legacy issues are holding back RBS. As the bank continues to clean up its balance sheet management is being forced to report huge multibillion pound one-off charges, which are skewing results. Nonetheless, on an underlying basis RBS’s business is improving steadily as costs are coming down and earnings from the more stable personal and corporate banking side of the business are growing steadily. Also, the state of the bank’s balance sheet continues to improve.

The bottom line 

Overall, Barclays and RBS are both struggling to achieve any kind of growth. While RBS can blame the lack of growth on past mistakes, it looks as if Barclays’ struggles can be traced to the bank’s lack of direction and management’s constant changing of direction. Unless management calls an end to Barclays’ seemingly endless restructuring programme and begins to focus on growth rather than cutting costs, Barclays will struggle to grow.