PRESENTED BY: Oluwasegun Akande - S11731546

PERFORMANCE COMPARISON BETWEEN BARCLAYS BANK PLC & LLOYDS BANKING GROUP PLC

INTRODUCTION – Performance Measurement in the Banking Sector

This Presentation is Looking at :

Financial Ratio Analysis

Profile of the two Banks

Stakeholders Analysis in Banking Sector  Factors Affecting Performance

Measurement in the Banking Sector

Financial crisis and the failure of the UK Regulatory framework

2011 Comparison at a Glance; Barclays Bank PLC & Lloyds Banking Group PLC

Also, Looking at are …

KPIs, Financial & Business Ratios: Comparison between Barclays Banks & Lloyds Banking Group

Investment appraisal techniques in banking sectors

Cost control in banking sectors

Forecasts for Barclays & Lloyds

Recommendations & Conclusion

Compare to other sectors, a strong financial services industry must be built on stable and sound foundations.

A resilient banking sector is of critical economic importance.

UK financial services in 2009 generated a trade surplus of £40bn and professional services firms a surplus of £6bn. UK exports of financial services are 3 times larger than any other country, and 10 times those of the US in 2008

FINANCIAL RATIOS ANALYSISLIQUIDITY RATIOS

Liquidity ratios measure the extent to which assets can be turned into cash quickly

Current Asset Acid Test

PROFITABILITY RATIOS

This determines how much profit a business has made, and then to compare it with previous periods or with other entities.

Return on capital employed Gross profit Mark-up Net profit

INVESTMENT RATIOS

Ratios that are primarily (although not exclusively) of interest to prospective investors.

Dividend yield Dividend cover Earnings per share Price/earnings ratio Capital gearing

EFFECIENCY RATIOS

How efficiently an entity has been managed, i.e. how well its resources have been looked after.

Stock turnover Fixed assets turnover Trade debtor collection

period Trade creditor payment

period

(Dyson 2008)

PROFILES FOR BARCLAYS & LLOYDS TSB

Source: FAME

Source: FAME

Barclays Banks PLC Lloyds Banking Group PLC

Banking Classification UK Retail and Business Banking Retail (Biggest Retail Bank in the UK)

Trade Description A group engaged in the provision of retail and commercial banking, credit card, banking, wealth and investment management services.

Group is involved in a wide range of banking and financial services through branches and offices in the UK and overseas.

Date of Incorporation: October 04, 1971 October 21, 1985

Registered Number: 01026167 SC095000

Registered Office 1 Churchill Place,LondonE14 5HPEngland

The MoundEdinburghLothianEH1 1YZScotland

Total Employees As at Dec 31, 2010

151,300 122,979

No. of Recorded Subsidiaries 352 2,364

Legal Form Public quoted Public quoted. 41% owned by the taxpayer following a massive Government bail-out.

Source: FAME

STAKEHOLDERS ANALYSIS IN BANKING SECTORS

CUSTOMERS Customer

Satisfaction

Competitive Advantage

Customer Perceptions of Value

Corporate Image

Switching Barriers (e.g. transaction costs, learning costs, loyal customer discounts and emotional costs)

Customer Loyalty

REGULATORS

Bank of England (the Bank),

Financial Services Authority (FSA) and

The Treasury

Collectively responsible for financial stability

MANAGEMENT & EMPLOYEES

Financial services employ over 1million people,3.9% of all UKemployment.

Business Strategy formulation & alignment

Risk Management

Corporate Culture

Principle of Engagement

INVESTORS & SHAREHOLDERS

Individual & Institutional

Interest is mainly on the Financial Performance Measurement

Using management’s own measures of success really helps deepen investors’ understanding of progress and movement in business.

(Cohen & Gan 2006)

FACTORS AFFECTING PERFORMANCEMEASUREMENT IN BANKING SECTOR

ECONOMIC ENVIRONMENT

Negative economic conditions place pressure on organizations to increase profitability (Burney, 1999). making it difficult for management to focus on improving and measuring non-financial performance.

TECHNOLOGICAL ENVIRONMENT

technological advancements seem to make banks offer a wider variety of customer services, not only to fulfill the needs of customers, but also to achieve economies of scale and to be competitive.

Emergence of contemporary system such performance measurement matrix (Keegan et al., 1989). SMART pyramid (Lynch and Cross, 1991). the balanced scorecard (Kaplan and Norton, 1992). result and determinants framework (Fitzgerald et al., 1991). The performance prism (Neely et al., 2001) and Comparative business scorecard (Kanji and Moura, 2002).

SOCIO-CULTURAL AND POLITICALENVIRONMENT

Most Banks in the UK are transnational institutions

Adopt consistent Performance measurement practices with international practices.

PRESSURES FORCHANGE

Mimetic pressures

Coercive pressures (e.g. Central bank’s regulatory control, Financial legislations)

Normative pressures (Professionals, Strategic Orientation, the corporate culture & top management.) – Professionals is the most dominant influence

Much Focus on financial measures, such as, Earnings per Share (EPS). Return on Investment (ROI) and Return on Equity (ROE).

(Rahat Munir, Kevin Baird 2008)

FINANCIAL CRISIS AND THE FAILURE OF THE UK REGULATORY FRAMEWORK

EMERGING CONSENSUS ON THE FUNDAMENTAL CAUSES OF THECRISIS

Global economic imbalances;

Mispriced and misunderstood risk;

Unsustainable funding and business models for banks;

Excessive build up of debt across the financial system; and

The growth of an unregulated ‘shadow banking’ system

UK’s ‘TRIPARTITE’ REGULATORYSYSTEM

Bank of England (the Bank),

Financial Services Authority (FSA) and

The Treasury

– collectively responsible for financial stability

THIS SYSTEM FAILED IN A

NUMBER OF IMPORTANT

WAYS

To identify the problems that were building up in the financial system;

To take steps to

mitigate them before they led to significant instability in financial markets; and

to deal adequately with the crisis when it did break, especially during the first part of the crisis in the summer of 2007.

2011 COMPARISON AT A GLANCE

Source: FAMESource: FAME

Lloyds 2011 (£m) Barclays 2011 (£m)

Total Asset

970,546

1,563,402

Total Liabilities

923,952

1,498,232

Shareholder Equity

45,920

65,170

Operating expenses

(10,621)

(20,772)

Net Income

21,123

26,780

Profit (Loss) Before Tax

(3,542)

5,974

Operating expenses Net Income Profit Before Tax

(10,621)

21,123

(3,542)

(20,772)

26,780

5,974

2011 ANNUAL REPORTS (Operating Expenses, Net Income

& PBT)Lloyds 2011 (£m) Barclays 2011 (£m)

Total Asset Total Liabilities Shareholder Equity

970,546 923,952

45,920

1,563,402 1,498,232

65,170

2011 ANNUAL REPORTS (Total Asset, Total Liabilities,

Shareholder Equity)Lloyds 2011 (£m) Barclays 2011 (£m)

KPIs, FINANCIAL & BUSINESS RATIOS

2007 2008 2009 2010 20110

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Barclays (Total Assets) Lloyds (Total Assets)

£ M

illio

n

2007 2008 2009 2010 20110

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Barclays (Income) Lloyds (Income)

£ M

illio

n

2007 2008 2009 2010 2011

-4000-3000-2000-1000

0100020003000400050006000

Barclays (Profit After Tax)Lloyds (Profit After Tax)

  2007 2008 2009 2010 2011

Barclays (Total Assets)1,227,58

32,053,02

91,379,14

81,490,03

81,563,402

Lloyds (Total Assets) 353,346 436,0331,027,25

5 991,574 970,546   

Barclays (Income) 23,523 21,153 29,094 32,214 33,123

Lloyds (Income) 10,696 9,868 23,278 24,956 20,771   Barclays (Profit After Tax) 5126 5249 3512 4172 3,616

Lloyds (Profit After Tax) 3,288 772 2,827 -320 -2,787

KPIs, FINANCIAL & BUSINESS RATIOS - Profitability Ratios

Lloyds

2010Barclays

2010Lloyds

2009Barclays

2009Lloyds

2008Barclays

2008

Return on Shareholders Fund 0.61 10.27 2.41 8.15 7.17 14.65ROCE 0.22 9.43 2.3 5.28 2.79 7.98Return on Total Asset 0.03 0.41 0.1 0.33 0.19 0.29

Return on Shareholders

Fund

ROCE Return on Total Asset

0.61 0.22 0.03

10.27 9.43

0.41

Profitability Ratio for 2010Lloyds 2010 Barclays 2010

Return on Shareholders

Fund

ROCE Return on Total Asset

2.41 2.3

0.1

8.15

5.28

0.33

Profitability Ratio for 2009Lloyds 2009 Barclays 2009

Return on Shareholders

Fund

ROCE Return on Total Asset

7.17

2.790.19

14.65

7.98

0.29

Profitability Ratio for 2008Lloyds 2008 Barclays 2008

Barclays Bank is a more profitable business compare to Lloyds Banking Group. This performance could be attributed to the management of Barclays Bank PLC. Most time, management of an organization seem to be the difference maker. This could be buttressed by the article on FT.com captioned “Barclays co-heads each get more than £9m” - By Sharlene Goff (March 14, 2012 )

According to FT.com, acquisition HBOS was a bad investment that contributed to their poor performance captioned “Lloyds in £42bn bill from toxic HBOS” - By Patrick Jenkins and Adam Jones (February 26, 2010 10:22 pm)

KPIs, FINANCIAL & BUSINESS RATIOS – Structure Ratios

Lloyds

2010Barclays

2010Lloyds

2009Barclays

2009Lloyds

2008Barclays

2008

Current Ratio 1.12 1.03 0.27 1.05 1.03 1.03Luquidity Ratio 1.12 1.03 0.27 1.05 1.03 1.03Shareholders Liquidity Ratio 0.56 11.18 21.41 1.84 0.64 1.2Solvency Ratio 4.56 3.97 4.21 4.06 2.58 2.01Gearing Ratio 814.52 0 4.67 54.61 157.16 912.12

Curre

nt R

atio

Luqu

idity

Rat

io

Shar

ehol

ders

Liqu

idity

Rat

io

Solv

ency

Rat

io

1.03 1.030.64

2.58

1.03 1.03 1.2

2.01

Structure Ratio for 2008Lloyds 2008

Curre

nt R

atio

Luqu

idity

Rat

io

Shar

ehol

ders

Liqu

idity

Rat

io

Solv

ency

Rat

io

0.27 0.27

21.41

4.211.05 1.05 1.84

4.06

Structure Ratio for 2009Lloyds 2009

KPIs, FINANCIAL & BUSINESS RATIOS – Structure Ratios

STRUCTURE RATIOS

The current ratio & liquidity ratio of Lloyds Banking group in year 2009 show that the group could not have been able to meet its financial obligation. It is clear indication of over trading on their part and this probably have caused the bank a financial crises. Massive business expansion with 100% rise in number of employee from 66,473 to 132,000 could have contributed to this.

The solvency ratio of Lloyds shows that its over dependency on outside sources for long-term financial support.

Curre

nt R

atio

Luqu

idity

Rat

io

Shar

ehol

ders

Liqu

idity

Rat

io

Solv

ency

Rat

io

1.12 1.12 0.56

4.56

1.03 1.03

11.18

3.97

Structure Ratio for 2010Lloyds 2010 Barclays 2010

(Dyson, 2008) (Walker, 2009)

2008 - '07 2009 - '08 2010 - '09 2011 - '10

-50.00

0.00

50.00

100.00

150.00

Asset Trends in %

Total Asset (Barclays) Total Asset (Lloyds)

2008 - '07 2009 - '08 2010 - '09 2011 - '10

-40.00

-20.00

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

Income Trends in %

Total Income (Barclays) Total Income (Lloyds)

GROWTH IN ASSET, INCOME & PROFIT OVER THE LAST 5 YEARS (TRENDS IN %)

  2008 - '07 2009 - '08 2010 - '09 2011 - '10

Total Asset (Barclays) 67.24 -32.82 8.04 4.92

Total Income (Barclays) -10.08 37.54 10.72 2.82

Profit (Barclays) 2.40 -33.09 18.79 -13.33

   Total Asset (Lloyds) 23.40 135.59 -3.47 -2.12

Total Income (Lloyds) -7.74 135.89 7.21 -16.77

Profit (Lloyds) -76.52 266.19 -111.32 -1151.94

KPIs, FINANCIAL & BUSINESS RATIOS – Trends in Percentage

KPIs, FINANCIAL & BUSINESS RATIOS – Trends in Percentage

2008 - '07 2009 - '08 2010 - '09 2011 - '10

-1400.00

-1200.00

-1000.00

-800.00

-600.00

-400.00

-200.00

0.00

200.00

400.00

Profit Trends in %

Profit (Barclays) Profit (Lloyds)

(Milis et al. n.d.)(ACCOUNTANTS n.d.)

TRENDS IN PERCENTAGE

Except for the Asset trend that seem to be getting stable for Lloyds banking Group, all others which include income and profit trends are noise-diving.

Although the income trend for Barclays Bank is also noise-diving but there is a relative stability in its profitability ; a good cost saving strategy and effective risk management can be deduced.

INVESTMENT APPRAISAL TECHNIQUESThe most important investment appraisal techniques are concerned not only with what cash flows will arise in the future as a result of the project, but also with the timing of those cash flows. For what reasons might earlier, perhaps smaller, forecast cash inflows be preferred than later, perhaps larger, cash inflows?

INVESTMENT DECISION-MAKING PROCESS

Origination of proposals

Project screening.

Analysis and acceptance

Monitoring and review

TECHNIQUES

Net Present Value

Accounting Rate of Return

Payback Period

Internal Rate Of Return (Graphical Approach & Interpolation Method)

INVESTMENT/SPROJECTS IN A BANK & CATEGORY OF BENEFITS

Banks could be involved in any type of investments/projects; IS services investment, Business Acquisition and so on are common to Banks

Use of these Traditional techniques might not be sufficient to evaluate an investments/projects such as IS service

Category of benefits

Tangible benefits

Intangible benefits

(Milis et al. n.d.)(ACCOUNTANTS n.d.)

COST CONTROL IN THE UK BANKING SECTORCost control has taken on a new priority at the UK’s banks. Since the crisis, market participants have been grappling with cost to income ratio strains and a more challenging regulatory and competitive landscape. And with revenue growth becoming increasingly difficult to source, bank executives have stepped up their focus on cutting costs wherever possible in a bid to make their organizations more efficient and agile.

COST CONTROL IN THE UK BANKING SECTOR

The problems with the cost efficiency ratios stem from a combination of factors on both sides of the cost to income equation:

Banks are struggling to grow top line revenues across many areas of their businesses.

growth in revenues, a number of institutions are seeking to expand their emerging market operations.

Catalogue of national and international regulatory initiatives in the wake of the financial crisis is continuing to add to the cost line.

Payment Protection Insurance (PPI) – as banks’ recent provisions demonstrate

Lastly, the Government announced in February, 2012 that it would increase the bank levy to £2.5 billion this year,

FORECAST FOR BARCLAYS BANK & LLOYDS BANKING GROUP

BARCLAYS BANK PLC LLOYDS BANKING GROUP PLC

Asset Quality Barclays is ready to remain confident on credit asset quality

Likelihood of improved asset quality as a result of the accelerated efforts to reduce risk-weighted assets (RWAs) and improve the funding and risk profiles

Cost Saving Barclays has identified up to £2 billion in potential savings by 2013, with a savings target of £1 billion at Group level

Lloyds is targeting annual cost savings of £1.5 billion per annum in 2014 (£1.7 billion of run-rate savings by end 2014).

Market Forecast As of Apr 20, 2012, the consensus forecast amongst 3 polled investment analysts covering Barclays PLC (ADR) advises investors to purchase equity in the company. This has been the consensus forecast since the sentiment of investment analysts improved on Apr 14, 2012. The previous consensus forecast advised that Barclays PLC (ADR) would outperform the market.

As of Apr 20, 2012, the consensus forecast amongst 31 polled investment analysts covering Lloyds Banking Group PLC advises that the company will outperform the market. This has been the consensus forecast since the sentiment of investment analysts improved on Apr 05, 2012. 

RECOMMENDATION & CONCLUSION

RECOMMENDATION

Lloyds: Proper investment appraisal should be carried out subsequently in any acquisition and investment.

Lloyds & Barclays: Cost saving campaign within the organization that will sensitize all employees

Barclays: Continuous good relationship with the clients, risk management and improving the strategic momentum of the Bank

Aside the Financial crises which affected all banks and the whole economy at large, the investment decision of Lloyds Managements in the acquisition HBOS caused the poor performance. This has greatly increased the level of nonperforming assets and elevated Lloyds' credit risk exposure and impairment provisions.

Lloyds has a recognizable underlying earnings power, but considerably weak profitability because of its low net interest margin, elevated expense base, and most importantly high credit costs

Barclays Bank PLC seem to have a better management staff with a sound business strategy. Barclays Bank was ranked amongst the top performers in the banking industry globally. Creating a good relationship with the clients, risk management and improving the strategic momentum of the Bank

REFERENCESBOOKS & JOURNALS Cohen, D. & Gan, C., 2006. CUSTOMER SATISFACTION : A STUDY OF BANK CUSTOMER RETENTION IN NEW

ZEALAND. Most, (109).

Dyson, J.R., 2008. Ratio analysis. ACCOUNTING FOR NON-ACCOUNTING STUDENTS Seventh Edition John R. Dyson ACNA_A01.QXD 2/20/08 7:10 AM Page iii, 7th Editio, pp.223-232.

KPMG, 2011. UK Banks : Performance Benchmarking Report. Europe.

Rahat Munir, Kevin Baird, S.P., 2008. CHANGES IN PERFORMANCE MEASUREMENT SYSTEM IN BANKING SECTOR : AN ANALYTICAL FRAMEWORK Rahat Munir , Kevin Baird , Sujatha Perera. Management Accounting, pp.1-24.

TREASURY, H., 2010. A new approach to financial regulation:,

Walker, J., 2009. 6.7 Assessing liquidity 170. Accounting in a Nutshell: Accounting for the Non-specialist Third Edition Janet Walker AMSTERDAM • BOSTON • HEIDELBERG • LONDON NEW YORK • OXFORD • PARIS • SAN DIEGO SAN FRANCISCO • SINGAPORE • SYDNEY &#8226.

WEBSITES & PORTALS

http://fame2.bvdep.com/version-201244/SSOLogin.serv?product=fameneo&loginpostback=true&ssotoken=7P0QjUmCOG5UE60jtsv3xQ%3d%3d accessed April 03, 2012 at 12:43pm

http://group.barclays.com/Investor-Relations/Financial-results-and-publications/Annual-Reports accessed April 16, 2012 at 16:57pm

http://2011.lloydsbankinggroup-annualreport.com/ accessed April 16, 17:08pm

http://www.ft.com/cms/s/0/5ccc7970-22a8-11df-8942-00144feab49a.html#axzz1sbaH1sFk accessed April 20, 2012

http://www.ft.com/cms/s/0/0d08b136-6e02-11e1-baa5-00144feab49a.html#axzz1sbaH1sFk accessed April 20, 2012

THANK YOU