'Adjusting out' the nasty bits doesn't give us a clearer picture of Barclays
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Version 0 of 1. How should we interpret Barclays’ results? The bank would like you to focus on two figures. First, adjusted pre-tax profits. They were up 12 per cent at £5.5bn, a shade better than the City had expected. Kudos! Of course there’s a but. Barclays said the adjusted numbers were presented “to provide a more consistent basis for comparing business performance between periods”. Ah, okay. And there was more: “Adjusting items are considered to be significant but not representative of the underlying business performance.” So adjusted out of the numbers were the cost of PPI mis-selling and managing claims, the foreign exchange rigging scandal, and other regulatory nasties. To me, the regularity with which conduct issues like these crop up means that to strip them out and treat them as if they are “not representative of the underlying business performance” is disingenuous, to say the least Barclays included £449m of “litigation and conduct” issues in its adjusted results, but it excluded £2.35bn. If we include that £2.35bn, but still allow Barclays to “adjust” out accounting issues such as goodwill and changes in the way certain loans are valued, we get to a rather more modest profit of £3.15bn, up by a rather more modest 8.6 per cent on the £2.9bn recorded in 2013. I would argue that this is much more representative of the “underlying business performance”. The second figure Barclays was keen to draw attention to was its bonus pool and how it had fallen. At £1.86bn, it was down 22 per cent despite the rise in profits. However, it would have fallen by just 11 per cent had the bank included so called “role based allowances” created to allow banks to funnel extra cash to their stars in the wake of the EU’s cap on bonuses. The case for including them is pretty strong because it’s money the bank would probably have otherwise paid out in bonuses. To its credit Barclays did that in its annual report. You can find it in the small(ish) print on page 79. All things considered these were still a decent enough set of results. But the final number to take note of is the size of the dividend payment. It came in at just £1.1bn, considerably less than the total bonus pool. So the shareholders who are putting their money at risk so the bank can carry out its activities are still getting quite a bit less than the bankers who use that money. If you think this doesn’t matter to you because you’re not a Barclays shareholder, think again. If you have a workplace pension you probably are. Barclays is a sufficiently large company that most pension funds will have at least some of its shares in their portfolios. The same goes for most UK funds you might hold in an Isa. Your money is being put at risk to enable Barclays bankers to make chunky bonuses. Or “role based allowances”. Unfortunately there’s not a lot you can do about it if you’re unhappy because your investments will be overseen by one of the big fund managers. They can’t be bothered to badger banks like Barclays – and it treats its shareholders well by comparison with some banks – for a better deal because doing so would cost money that they would prefer to be spent on bonuses for their own top people. This is shameful and it demonstrates why I called upon the City watchdog yesterday to dramatically expand the scope of its planned “review” into the way the industry handles workplace pensions. “Last year had more ups and downs than Taylor Swift’s love life.” It’s odds on that you’ll be able to guess which company came up with that statement without too much trouble. Ups and downs it may have dealt with, but Paddy Power usually wins out in the end, and this year is no exception. Revenues were up by nearly a fifth, profits by more than a fifth and the bookie said it was planning to hand €392m (£284m) of its winnings to its shareholders as new chief executive Andy McCue put his stamp on the business and won a resounding thumbs up from the City. The bookmaking sector as a whole might be under a cloud as a result of tax, regulation and a decidedly unfavourable political climate on this side of the Irish Sea. But Paddy Power appears set to sail on through it. It’s worth noting, too, that the bookie knows how to make money from betting shops that don’t rely on noxious fixed-odds betting terminals. No wonder Paddy is growing its estate as its rivals prune theirs. What Mr McCue isn’t going to change is what he describe as the firm’s “edginess”. The problem is that its “edginess” is increasingly descending into witlessness. It started with offering bets on the trial of Oscar Pistorious. More recently Chelsea fans have been offered the chance to show they are not prejudice (sic) by having a picture taking with a line-up from politically correct central casting in the wake of the controversy over the disgusting racism shown by a minority of the club’s more antediluvian fans. Previous stunts have seen the bookie straying close to the line without ever quite crossing it. Now it has done that twice in a fairly short space of time. Paddy Power’s executives might look at their results and shrug their shoulders. Screw the critics. But a brand that started out cheeky and subversive is now in danger of being seen as crass and nasty. Paddy needs to turn the charm back on, and quickly. |