International market growth strategies of Barclays bank

Barclays is a United Kingdom based financial services group that places its focus within the areas of banking, investment banking and investment management. Barclays has operations running throughout sixty countries with major points of interest in Europe, the United States, Asia, and Africa. Barclays is the fourth largest bank in the United Kingdom. The banks headquarters are at Lombard Street in the City Of London. Barclays currently employs 78,000 employees and Barclays currently owns more stock (3.9%) than any other stockholder in the largest company on the planet, Exxon Mobil. The fundamental principal to Barclays philosophy is to include the interests of all of their shareholders from customers, employees, shareholders and the wider community in route to providing a valued and prosperous circumference of satisfied stakeholders.

A high priority is placed on dealing with three lines of operations. Firstly the banking division that provides up front service and customer attention to United Kingdom retail and business banking customers. The UK retail banking side courts some for 14 million accounts, servicing around 566,000 customers, while the business side lends service to primarily middle to larger sized businesses of around 180,000 customers. A second major focus for Barclays is Private Clients. Barclays stands today as the largest retail stockbroker in the United Kingdom, with clients mainly in the UK and the continental Europe. The gist of the client makeup is high net worth and clients of corporate billing. Third is the International Retail and Commercial Banking sector of Barclays business. Barclays has some 800 international branches placed throughout Europe, Africa and the Middle East, which provide a large array of services including current accounts, savings, mortgages and loans. Others smaller areas of focus for Barclays are Barclays Capital, Barclaycard, Barclay Global Investors and Woolwich. It is within these areas that Barclay is placing a larger focus towards growing throughout the international markets. Barclays Capital is a global investment bank which provides advice and solutions to the financial and risk management needs of corporate, institutional and government clients. Barclaycard has some 11.2 million UK customers with 2.9 million cards issued internationally. This happens to have been the UK’s first credit card and also the leader in card services provided over the internet 800,000 customers using the online account services. Barclaycard operates internationally throughout Europe, the United States and Africa and has recently made efforts to expand even more into the United States with the acquisition of the US credit card, Juniper Financial Corporation in December 2004. Barclays Global Investors is a world leader in providing investment management products and services and is also a global leading asset manager. In 1971 Barclays Global Investors created the first index strategy and followed this in 1978 with the first quantitative active strategy. Barclays Global Investors holds some 68 million British pounds in Exchange Traded Funds with over 100 funds in ten international markets for individual and institutional investors. Lastly, Woolwich is a mortgage business that was acquired by Barclays in 2000. It has been transformed into a division that deals largely with home financing and lends its branding to Barclays mortgages.
   

Barclays has placed a great deal of interest in international growth beginning as far back as 1925 with the merger that began the formation of Barclays International Operations of three banks: the Colonial Bank, the Anglo Egyptian Bank and the National Bank of South Africa. This pushed Barclays into Africa, the Middle East and the West Indies. By the 1980s Barclays became the first bank to file with the Securities and Exchange Commission in the U.S. and by 1986 was the first British bank to be listed on the Tokyo and New York Stock Exchanges. Barclays Capital formed around the same time establishing an investment banking operation that today manages larger corporations and institutional businesses. In the mid 1990s Barclays formed Barclays Global Investors through the purchase of Wells Fargo Nikko Investment Advisers which was combined with Barclays BZW Investment Management. Barclays has also kept pace with innovation with concepts such as online customized servicing through Barclays Private Bank and Premiere Banking. These steps have kept Barclays competitive in the banking industry and guided them towards a promising path in international growth.

Foremost to continually compete internationally, Barclays must strive to perform customer service at an utmost level of excellence. This will promote Barclays worldwide as a business that can be relied upon time after time for small individual accounts as well as huge corporate accounts. To accomplish this, Barclays must identify their customer groups and the needs associated with each particular group and develop products and services that will be of great value to their customers. The practices that have worked in the past must be reconfigured to work for years to come and keep Barclays updated with the high changing IT world. This will call for new investments into new levels of technology that can help offer higher levels of service to its customers. Along with the apparent increase in speed that IT will allow Barclays to accomplish routine tasks, technology will also reduce risk of errors and fraud. (www.thebanker.com) This leads straight into a second integral point of interest for Barclays. The need to place major investments into the most modern and efficient IT systems available that enables top of the line business transactions to transpire unhinged. IT will allow up to date information to be at the fingertips of Barclays managers, giving managers a huge advantage when it comes to making decisions and in pin pointing groups of customers that can have a high added value to Barclays. The fine-tuning of IT will also eliminate weaknesses within Barclays practices, preventing failures that effect customers and thus reducing excessive and unnecessary costs.

Barclays has been very successful as of late in carrying out its desired tactics. As of February 2005, Barclays had recorded record net profits with a large amount of its success attributed to its investment ability. Net profits, according to Barclays scoured upward some nineteen percent in 2004 hitting 3.27 billion pounds, which translates to 6.08 billion U.S. Dollars and 4.76 billion euros. (www.barclays.com) Along with profits, revenue soared to 13.9 billion pounds, up from 12.4 billion pounds. (www.forbes.com) This strong increase in Barclay’s position stalemated, at least for the time, the talks of a take over that have held Barclays under scrutiny for quite some time now. According to Barclays, its increase in its 2004 profits can be tied largely to its ability to reduce the number of bad debts and the growth within Barclays Capital, its investment banking division. Barclay’s 2004 increase in profits follows swiftly on the feet of its 2003 increase of some twenty percent in pretax profits.

Huge investment strategies that have led to this increase in profits include the acquirements within its Barclaycard card business. The beginning of February 2005 brought two swift and powerful movements by Barclays, the first being a card issuing agreement with ForeningsSparbanken of Sweden, targeting the Nordic and hopefully the Eastern European markets. This move was followed shortly after by its US issuing business Juniper, mentioned above, acquiring a credit cards portfolio including an undisclosed number of credit card accounts from Oregon Community Credit Union. This happened to be Junipers first transaction since Barclays bought them the previous year. Barclays has placed its sights on transforming Barclaycard into an international brand in light of recent pressures domestically that include higher funding costs and a brutal interest rate environment. (www.thebanker.com)
With growth on its mind, Barclays has set out to create an international business that if forecasted correctly, the income generated in its Barclaycard division will be of equal value internationally as well as domestically by 2013. This is a hearty goal for as of the present, Barclays stands at a mere 8 million pounds in pre-tax income that encompasses the entire international business, compare that to the pre-tax income of 793 million pounds in 2004 for its domestic business alone. However, from 2003 Barclay’s international pre-tax income rose one hundred percent from 4 million pounds. (Mauritius, 2004)

Barclays has also placed strategic action in growing throughout Europe. Barclays announced an investment of 76.5 million pounds that will gain them a fifty percent stake within a joint venture with FSB that will be headed in Stockholm, Sweden. Chief executive of Barclaycard, Gary Hoffman, said the venture will provide a powerful partnership that, “combines FSB’s customer and distribution strengths in Scandinavia with Barclaycard’s leading-edge risk management and customer acquisition skills.” However, despite Barclay’s desire to establish Barclaycard as a valued global brand name, the FSB name will probably brand the new venture.
This venture seems to have a great target, as the Nordic region is very low in cards per adult. According to Barclays there are only 0.1 cards per adult in Sweden and 0.4 in Norway; this compares to 1.5 cards per adult in the UK. Demand is rising though in the Nordic region, as according to the Swedish central bank that credit cards account for sixteen percent of the proportion of outstanding consumer credit balances in Sweden, this up some six percent since 2002. (McIntosh, 2002)

In the short-term the venture hopes to achieve growth throughout the existing 3.6 million FSB customers that currently do not use an FSB credit card, but for long-term goals Barclays has its sights set on growth across the entire Nordic region. FSB has already made a move that can allow Barclays and Barclaycard greater access into the East European market, by making an offer for the remaining forty percent of Estonia’s AS Hansapank that it currently does not own; Hansapank holds a very strong position within the Baltic region. If FSB is successful in accumulating the full ownership of Hansapank, the thought is that the move will allow for a maximizing in operating synergies along with a reduction in funding costs.

All of these moves are foreshadowing that Barclays has big plans ahead, however there are many steps that are still needed along the way. Current projects including the purchase of Juniper will keep profits down in 2005 after already creating a 2 million pound loss initially after the deal was done in December 2004. Despite certain setbacks, Barclays was able to keep a stable credit quality, with its delinquency levels as a percentage of outstanding payments also were quoted as being stable. What is evident is that Barclay’s focus has become international for the future of its businesses, however card penetration levels have hit fifty percent in the United Kingdom, up from forty five percent a couple of years before, compare this thought to the seventy five percent penetration level in the United States. However, Gary Hoffman remains optimistic, saying that there is no reason why the penetration levels in the United Kingdom could not reach sixty percent in the immediate future. Hoffman warns though about the concern of over-indebtedness in the United Kingdom, “We are watchful but not worried about the levels of debt and our delinquency rate. When we lend to customers that do not have a track record we give a relatively low limit - say 500 pounds – and then with a track record we would increase that over time.” (Morbin, Buckley. 2005)

As discussed, Barclaycard has already grown throughout the United States, United Kingdom and Scandinavia but is also operating in Spain, Germany, Greece, Italy, Portugal, the Republic of Ireland and across Africa. Just three years prior Barclaycard was solely a single brand, United Kingdom credit card business. Today it is a multi-brand with Clydesdale, First Plus, Monument, Barclays Branded Consumer Loans and Barclaycard. Internationally Barclays now has three million credit cards, which shows great strides in the partnership strategies that Barclays has embarked on domestically and internationally. (www.barclays.com)
The purchase of the U.S. credit card company Juniper Financial for $293 million is a key part to Barclay’s expansion into the U.S. market. Juniper specializes in forming partnerships with companies (i.e. Frontier Airlines, Caesars Entertainment) and issuing cards in their name. The purchase will accumulate some $1.4 billion in assets and an additional 700,000 customers for Barclays. This will serve as a great addition as Barclays, as of previous, only held 1.8 million customers outside the United Kingdom. Barclays has an aggressive growth plan intact for Juniper, expecting Juniper to post a loss of $100 million in the first two years of the deal covering marketing expenses, however by the third year Barclays forecasts Juniper to add an additional $150 million in operating expenses per year. This despite Juniper’s inability to ever turn a profit since the company existed in 2000, with Barclays claiming that last year Juniper would have turned a profit without having to carry the $100 million loss. (www.iht.com)

According to Gary Hoffman, the deal “underlines Barclays strategy to grow its global product business.” (Morbin, Buckley. 2005b.) Hoffman provides that in ten years Barclays plans to have formed an international credit card business that rivals its British card business.

Analysts are optimistic that this will keep Barclays from folding to buyout offers, especially from Citigroup. The purchase of Juniper indicates that Barclays now wants to stay independent, with many believing that Barclays would now be unwilling to sell at any price that Citigroup would be willing to pay. Juniper is a large step in the international card issuing area for Barclays. Juniper, which when founded was sought out to be a full-service online bank, now solely issues credit cards directly to customers or through the co-branded strategy. This has been a strong suit for Juniper, who “did really well at picking up the second tier airlines as partners” according to Paul Jamieson, president of the independent market research company FiSite Research. Jamieson says the move was very tactical as “these are the airlines that are actually making some money, not filing for bankruptcy like the larger carriers”. (www.iht.com) Also in a huge bonus to Barclays, the Juniper management team will stay on to run the business. This a key addition to the success of this acquisition as many times such takeovers fail due to the inability of the take over company to integrate its practices to formulate properly within the new company and by the time the parent company establishes a plan to run the newly acquired company it is too late, the losses have accumulated to high to make the deal successful and the acquired company ends up being dropped as the parent company tries to salvage what they can from the deal.

Another huge step by Barclays to grow throughout the international markets is Barclay’s deal to outsource its payments processing for corporate customers to Deutsche Bank, which is an unruly step following Deutsche Bank’s announcement tin 2003 that their payments for retail customers will be processed through Postbank. This is one of the latest banking trends as in February 2004, Barclays was involved in at least two additional outsourcing deals, firstly the handling of its trade services processing to ABN Amro, the other the providing of dealing services given over to Mellon European Fund Services. This trend has become a huge part of banking in the U.S. and European markets as of late, where these companies are outsourcing among themselves to create a competitive advantage and comparable efficiencies of scale. As for Barclay’s deal with Mellon, Mellon stems to be an example of how outsourcing can be handled from both directions. Mellon insources work in its core asset management and security services businesses and is an outsourcer to the Philippines and India of operations such as call centers and software development. The outsourcing trend follows with contracts that stem some seven to ten years, which means that banks are lending their hands entirely to efficiency despite the adherent inability of flexibility that ensues.

Barclays has come a long way since its origination as a private Quaker partnership in 1690, located in the city of London’s Lombard Street. By the 20th century, Barclays had become one of Britain’s “Big Five” Corporate High Street Banks and a significant financial actor within the international economy. By the 1930s Barclays was the largest banking company in the world, which reflected its ability to orientate its growth to that of the world’s economy. At the end of the Second World War over a quarter of Barclays group’s assets were held abroad, sustaining the banks persistence to being committed to international banking that by the reach of the 1980s Barclays had accumulated ownership of more branches overseas than that of combining all of the U.S. banks. (Ackrill, Hannah.2001) As of today, Barclays groups stands as a valued and important financial corporation throughout the world, combining discretion with an added layer of risk taking that has enabled Barclays to flourish and maintain success for some three hundred years. Barclay’s reach into the international market is just another risky venture that will enable Barclays to stay successful and compete for the next three hundred years.