‘Operating jaws’ key to Barclays balancing act

Listen to this article

00:00
00:00

“We are focused on creating happy customers and positive operating jaws,” said Barclays, describing its retail business in Tuesday’s first-half results. How happy customers feel about being in Barclays’ “operating jaws” is questionable – this lamentable piece of banking jargon has something to do with income rising faster than costs.

Still, for Barclays making those operating jaws work is important because they hold the key to making it a more balanced group. It is still dominated by BarCap, the investment banking business which, like other investment banks, experiences plenty of earnings volatility. In the first half of the year it accounted for 63 per cent of group adjusted profits (or 90 per cent if a one-off charge in the retail business is included).

That’s an improvement on the adjusted 86 per cent recorded for the same period in 2010, thanks to falling profits at BarCap and rising profits in retail banking. But it’s still some way from the 50-50 split that Barclays has been aiming for.

On the evidence of Tuesday’s numbers it will take some time to get there. The retail business is making progress, but it’s tough going. The increase in profits is down to a fall in UK impairment charges – income in the UK grew just 3 per cent. It was a similar story at Barclaycard.

The retail businesses elsewhere are hardly thrilling. Europe showed a £161m loss while profits from Africa, which Barclays sees as one of its great hopes for the future, fell slightly as the rise in costs outpaced the rise in income. At Barclays Wealth, another great hope, profits fell 7 per cent to £88m.

Such a mixed performance leaves the retail side of the bank still trailing its bigger, brasher sibling. If Barclays wants to meet its target of levelling things out, it’s going to have to open those operating jaws a lot wider.

Throwing light on charges

Owners of Hargreaves Lansdown shares had a day to forget on Tuesday – one of the few since the company floated in 2007. The shares slipped 13 per cent to 506½p as investors fretted about its business model.

The company does very nicely out of Vantage, its online fund platform. Private investors buy funds through the platform, and in return the fund management companies share some of their fees with Hargreaves Lansdown. Other platform operators work in a similar way. On Monday the FSA said that it would like to ban these rebates of charges in order to improve transparency, although it added that more research was needed. After consulting everyone, the FSA has decided to have a consultation.

Hargreaves Lansdown is unperturbed. “We have lots of business models, so we’ll be OK whatever the FSA proposes,” was the gist of its response on Tuesday. Analysts are not so sure and, judging by the market reaction, neither are investors.

But there’s more at stake here than just one type of business model in one part of the industry. For years, the financial services industry has tried to convince private investors that they’re paying next to nothing for an excellent service, when in fact they’ve been paying rather a lot for what has often been a lousy service. The consequence is that private investors are now reluctant to pay for financial advice.

The Association of Investment Companies, the industry body for investment trusts, has a good point when it calls for explicit charges for funds, advice and platforms. Granted, the AIC has an axe to grind – as listed companies its members can’t really participate in the merry-go-round of money between fund managers, platforms and financial advisers. But there’s a lot to be said for a charging structure that leaves everyone under no illusion about who they are paying, and for what.

Pandora’s challenge

Has Allan Leighton finally met his match? The man who turned round Asda and took on Royal Mail now has to face problems in the charm bracelet market. Shares in Pandora, the jewellery company Mr Leighton chairs, fell 65 per cent on Tuesday after a profits warning.

Now Lombard might not know much about charm bracelets, but it does know a business challenge when it sees one. So, it seems, does Mr Leighton.

In addition to chairing Pandora, he sits on the board of BSkyB, where the shadow of News Corp still looms large. He also chairs Pace, the set top box maker recovering from its own profits warning in May (before Mr Leighton arrived).

Mr Leighton once coined the phrase “going plural” to describe his diverse array of business interests. This collection of corporate headaches isn’t perhaps quite what he had in mind.

oliver.ralph@ft.com

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.