London based Barclays PLC (NYSE: BCS) is the largest exchange traded fund (ETF) provider in the U.S. The company has commercials featuring seemingly uptight bankers smacking hands in elevators or sliding down escalator hand rails in quiet celebration of this accomplishment just scratches the surface of the revenue streams that are propelling the British bank forward.
Reasons for Growth
In February, Barclays reported strong results for the end of 2006. Major contributions were made by Barclays Capital, UK Banking, Barclays Global Investors and its newly acquired South African Group named Absa Group Limited. Barclays UK Banking profits rose 17% due to increases in deposits, retail and commercial loans.
Barclays Capital managed to boost profits 55% from investment banking along with investments in commodities, equities and credit derivatives. Barclays Global Investors profits jumped 32% due to higher asset management fees for its popular iShares products and other actively managed portfolios. Barclays owns the rights to market the iShares products.
Clever marketing allowed Barclays to increase assets under management from $301 billion to $1.8 trillion at the end of 2006. Absa Group Limited profit grew 24% in Rand reflecting favorable results in mortgage loans, commercial property loans and credit cards.
Barclays is trading at a discount with one of the lowest price-to-earnings growth (PEG) ratios (0.85) in the foreign money center bank industry. Value investors often seek out investment with PEG ratios below "1" since this suggests a strong outlook for earnings growth. Barclays low forward price to earnings (PE) ratio of 10.2 further supports the potential value of the bank to investors based on Wall Street's future earnings sentiment. Investors should also note that Barclays rewards investors with a desirable 4.9% annual dividend payout.
Barclays has made an offer to buy Dutch bank holding company ABN Amro (NYSE: ABN) in March. ABN Amro has been under pressure to break apart the bank and sell off the pieces from discontent hedge fund managers with London based, The Children's Investment Fund. The combination of Barclays and ABN Amro would make it one of the world's largest banks in terms of market value a $160 billion behind stalwarts including Citigroup (NYSE: C), Bank of America (NYSE: BAC), HSBC Holdings (NYSE: HBC), JPMorgan Chase (NYSE: JPM) and new comer ICBC (Industrial and Commercial Bank of China).
Barclays is attracted to ABN's Dutch, Italian, U.S. and Asian operations as it strives to compete with its global competitors. The likelihood of the deal is still uncertain at the point. While the merger is in flux the subprime market has been showing weakness and Barclays has taken advantage by renegotiated its purchase of Region Financials (NYSE: RF) subprime business down 66% to $76 million.
Barclays Forward Look
Barclays displayed its intent to roll out products that make sense for investors with the introduction of 8 bond iShares ETFs on the New York Stock Exchange in January. These products give fixed income managers more options when constructing portfolios for their clients that are both tax efficient and risk averse. To further ingrain its name in the mind of customers Barclays Banks has purchased the naming rights of the pro basketball Nets Brooklyn Arena (future home of the current New Jersey Nets). According to New York City Mayor Michael Bloomberg, Barclays is entering a 20 year marketing partnership that could be valued at $300 million.
For investors looking to diversify their bank holdings Barclays has the flash, the products and the global reach to keep earnings growing and investors happy.
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