Environmental Analysis of Barclays Bank Essay

EXECUTIVE SUMMARYBanks ar pennyral to every inn they provide the keep that facilitates business and entrepreneurship, support a sound fiscal clay, and help to create jobs and wealth. Banks in the UK operate in a passing competitive, b solely-shapedised but lightly-regulated surround. They face increasingly well-informed and energetic customers, determined legislators, and electorates who be becoming surroundally aw atomic number 18. They bring in to adapt to changing economic and food commercialise find outs, fast changing consumer needs and expectations. Their business is influenced by planetary economic, political, regulatory, expert and other maverick factors. Consequently, they have to device their strategies, policies and operations to adapt to these changes in order to meet stakeholder expectations and satisfy consumer needs. In this assignment, I try to imbibe and evaluate changing business surroundings of Barclays Bank Plc everyplace the dying 5 divisions. INTRODUCTIONAbout Barclays Bank PlcBarclays is a major(ip) global fiscal put to death provider engaged in retail bounding, attribute tease, corporate relying, enthronement riming, wealth way and investment management go with an extensive inter subject bea presence in Europe, the Americas, Africa and Asia. BarclaysGroup headquarters is at 1 Churchill Place in London, UK, but it has operations all all everywhere the world, with products and portions to meet the needs of customers and clients in local markets. With over three hundred eld of history and expertise in riming, Barclays operates in over 50 countries and employs much than than 144,000 batch. Barclays moves, lends, invests and protects currency for more than 48 trillion customers and clients worldwide.Organizational grammatical constructionBarclays is made up of two Clusters Global retail Banking, and Corporate and enthronement Banking and Wealth Management, each of which has a number of Business Uni ts. The third major area of the business is Group Centre, which comprises all our essential support functions.UK Banking assiduityUKs affirming celestial sphere, following the US and Japan, is the worlds third largest and considered inaugural in terms of efficiency, dynamism and return on capital. In gain to having one of the largest commercial banking industries, the UK is also a major supranational cin one casenter for investment and private banking. The UK banking sectors strong international penchant is reflected in the substantial foreign presence and sizeable assets of foreign banks in London. It service 95% of the population with about 3.5% of UKs workforce over a million workers.Banks and financial services contribute 70bn to the UKs national output (6.8% of GDP) and provide 25% of total corporation tax (8bn) to the UK political relation. The briny retail banks provide over 125m accounts, clear 7bn proceedings a year and facilitate 2.3bn cash withdrawals per year from its network of over 30,000 free ATMs. Banks in the UK contribute well over 100m per year to charities and local community initiatives.UK banks are authorised and regulated by Financial Services Authority infra(a) the Financial Services and Markets fare 2000 (FSMA). Financial Services Authority is an separate non-governmental body which exercises statutory powers under the FSMA. The FSMA requires the FSA to pursue four objectives to maintain arrogance in the UK financial system to promote public understanding of the financial system to secure an appropriate degree ofprotection for consumers whilst recognizing their own responsibilities and to smother the scope for financial crime. Banks of England is responsible for maintaining overall stability of the financial system a whole. The Bank sets interest rates of UK and is also responsible for identifying and bound systemic financial chance.ANALYSISBarclays bank operates almost all over the world and hence its actions are influenced by the global economic conditions. I have utilize PESTEL manikin to describe and evaluate business environs of Barclays Bank plc. It categorises environmental factors into six main types political, economic, social, technological, environmental and legal.Political* Government stability* Taxation policy* Foreign trade regulations* Social social welfare policiesEconomic factors* Business cycles* GNP trends* Interest rates* Money add up* Income distribution* Social mobility* Lifestyle changes* Attitudes to work and leisure* Consumerism* Levels of educationtechnical* Government spending on research* Government and industry steering on technological effort* New discoveries/development* Speed of engineering science transfer* Rates of obsolescenceEnvironmental* Environmental protection laws* Waste garbage disposal* Energy consumptionLegal* Monopolies legislation* Employment law* wellness and safety* Product safetyThe change in the business environment of Barclays bankEco nomic factorsThe collapse of a global ho apply bubble, which reach in the U.S. in 2006, caused the values of securities tied to real solid ground determine to plummet thereafter, damaging financial institutions globally. Questions regarding bank solvency, declines in credit availability, and discredited investor bureau had an continue on global stock markets, where securities suffered large losings during late 2008 and early 2009. Economies worldwide slowed during this period as credit tightened and international trade declined. Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion, and institutional bailouts.The subsequent emergence of a wider set of credit problems in mortgages and in corporate contribute, and in particular in commercial real estate generated credit capacity constraints and economic slowdown. An initial focus on funding problems, with the failure of Northern Rock caused not by immediately lucid solvency/cre dit quality problems, but by the drying up of the market for two securitised credit assets and wholesale funding availability. Such funding issues were also little to the problems of Bradford & Bingley and HBOS in September/October 2008.The UK economy was officially declared to be in recession on 6th May 2009. The Office of National Statistics give tongue to that Gross domestic product (GDP) fell by 1.5% in the croak three months of 2008, after a 0.6% contraction inthe old quarter. box is generally defined as two quarters of successive contractions in GDP, which means the UK had been in recession since July 2008. Industrial performance fell by a massive 3.9 per cent over the quarter, spot the dominant services sector fell by one per cent. Unemployment had also risen to 2.47 million in the three months to July 2009. It was at its highest level in 14 years since May 1995.The UK economy came out of recession in 2010, after figures showed it had with child(p) by 0.1% in the las t three months of 2009. In the second week of January 2010, UK unemployment fell for the first time in 18 month. The UKs production and service sectors each grew by 0.1% during the quarter. The UK recession began in the April-to-June quarter of 2008, and was the yearlong UK recession on record. During 18 months of recession, public borrowing change magnitude to an estimated 178bn, while output slumped by 6%.Impact on Barclays Banks performanceBarclays announced record attains of more than 11 one thousand thousand for 2009 a 92% rise on the previous year. Its performance dictated largely by a strong revival in its investment banking arm Barclays Capital. Profits were also boosted by sale of fund management business Barclays Global Investors, and the addition of the New York operations of failed investment bank Lehman Brothers at the end of 2008. The BGI sale added 6.3 billion to pre-tax profits. Barclays Capital contributed 2.5 billion of the banks underlying profit of 5.3 bil lion which was 13% down on 2008s 6 billion. However, the banks profit was highly alter by the global economic slowdown and deteriorating economic conditions in the UK.Its UK Retail Banking profit before tax in 2009 decreased 55% (757m) to 612m (2008 1,369m), wedge by low interest rates resulting in margin conglutination on the deposit book and increase impairment charges which together more than offset well controlled costs and an improved assets margin. Impairment charges rose to 974m (2008 414m), reflecting the impact of the economic recession across the business with continued pressure on corporate liquidity, uphill default rates and lower asset values.Barclays oblige strict criteria on cutting credit card applications, using ascoring system that takes over 400 variables into account when assessing an applicants likely ability to manage their credit. Around 50% of applications for credit cards are declined as a result. Strong income growth (2009) across the portfolio dete rmined by increased lend, improved margins and foreign exchange gains, was offset by higher(prenominal) impairment charges, driven by the deterioration in the global economy. Impairment charges in the international businesses increased 444m, driven by higher delinquencies due to deteriorating economic conditions. UK portfolio charges were higher as a result of rising delinquencies due to the economic deterioration, especially in the give portfolios, and the inclusion of goldfish in UK Cards.The impairment charge in Global Retail and moneymaking(prenominal) Banking increased by 85% (2,473m) to 5,395m (2008 2,922m) as charges rose in all portfolios, reflecting deteriorating credit conditions across all regions.Impairment charges on loans and advances increased 50% (2,445m) to 7,358m (2008 4,913m). The increase was primarily due to economic deterioration and portfolio maturation, currency movements and methodology enhancements, partially offset by a contraction in loan balances.In Investment Banking and Investment Management, impairment was broadly unchanged at 1,949m (2008 1,980m). The impairment charge against available for sale assets and reversed repurchase agreements increased by 41% (207m) to 713m (2008 506m), driven by impairment against credit market exposures.PoliticalDuring 2008, the UK government acted in the banking sector to recapitalise banks and guarantee toxic assets and deposits and bracing lending for essential infrastructure programmes. This was essential to shore up lending for consumers and businesses and restore confidence in banks. Also it was vital to avoid the unprecedented banking crisis having even more wide reaching and catastrophic effects in the wider economy. This decision was not taken lightly and wasnt considered an easy annoy for the banks. Banks wishing toparticipate in the Asset Protection Scheme for case had to make additional lending to households and businesses. But the overarching priority in the banking sector was f irst to ensure the continuing cede of credit to the wider economy. This means return the banks to solvency and profitability, and maintaining financial stability.On 13th October 2008, the government nationalised the Royal Bank of Scotland (RBS), winning up a 63 % stake in exchange for 20 billion of taxpayers money (now 84% owned by the government) on condition that no decision maker bonuses paid during 2008 no dividend until the governments 5bn of gustatory modality shares are repaid and the government appointed three directors RBS had to maintain mortgage lending at 2007 levels.On 31st October 2008, Business secretary Lord Mandelson waived contendr law for takeover of Lloyds TSBs takeover of Halifax Bank of Scotland creating the fourth biggest bank of Britain to calm uncertainty about the strength of HBOS after a run on its shares. The combine bank accounts for a third of the mortgage market. Although the integrate bank is smaller than Barclays, HSBC and Royal Bank of Scot land, because it has less of an international visibleness than the other banks, it is the market leader in terms of savings by a huge margin.In order to shore up confidence in the banking system during 2008, the government injected money into Lloyds TSB Bank (5.5bn) and HBOS (11bn) and became owner of 43.5% of the combined group, directors were asked to receive 2008s bonus in shares no dividend until preference shares are repaid government appointed two directors Lloyds asked to maintain mortgage lending at 2007 levels for next three years. As the Financial Services Authority increased the capital ratio requirements for all UK banks, Barclays had been forced to raise 7.2 billion from midpoint Eastern Investors on generous terms. A further 1.5bn was being raise from institutional investors to spike its balance sheet.Chancellor Alistair Darling introduced a fleeting one-off super-tax of 50% on bankers bonuses paid above 25000 between December 2009 and April 2010. Bankers tacit had to pay income tax on any bonus they receive as usual. Thenew tax was designed to discourage banks from awarding large bonuses to employees in the wake of the major taxpayer support they have received in the financial crisis. Consequently, Barclays paid 225 million in windfall bonus tax for 2009.Sociocultual consort to British Retail Consortium (BRC), more people are using cash to pay for their purchases amid growing consumer concerns about how much money they are spending. The global credit crunch is causing consumers to be more wary with their money. Figures from the organisation showed that cash was used for 60 per cent of all transactions during 2008, an increase of 54 per cent from 2007. Cash represented 34 per cent of all money spent in the retail sector during 2008, compared with 32 per cent in 2007. According to BRC, peoples enthusiasm for using cards is slipping as they are not only loth to borrow but also reluctant to use cards.A visual modality released on 22nd Jan uary 2009 by communications consultants Cohn & Wolfe revealed the full scale of UK consumers provoke with financial institutions. UK consumers perceive their banks to be greedy and impersonal, according to the survey, which polled 852 consumers in January 2009. The study also revealed that 60% of consumers dont believe that their bank is looking after their best interests. When asked which words best describe the recognition of their financial institution, consumers identified greedy (49%), impersonal (36%) and distant (34%). Positive and craved descriptions including ethical (2%), giveworthy (4%) and transparent (5%) were among the least common terms used by consumers to describe their financial institutions.Almost two thirds (64%) of respondents trust in financial institutions had weakened over the last 18 months. A deprivation of confidence in banks was further emphasized with 74% of consumers saying that they do not believe that their bank would help them recover any money t hey had garbled in 2008. Respondents also identified the financial services they indisputable most. Retail banks were comfortably (59%) the most trusted type of financial service. At the other end of the scale, investment broker (2%), insurance providers (5%), online financial service providers and supermarketretailers (both 6%) come off worst.Due to such negative situation towards banking industry and intense public interest and concern for banks and bankers pay, Barclays chief executive John Varley and president Bob Diamond both agreed to release bonuses for two years, 2008 and 2009.TechnologicalIn late 2004, Chip & tumble engineering science was introduced as a strategic response to tackle counterfeit and lost & stolen card pseud in the face-to-face environment. Up until this point, UK consumers signed for their goods and services and only used their PIN for ATM withdrawals. During 2007, Barclays sent out PIN sentry machines to over fractional a million customers in an e xertion to prevent online banking fraud. The PIN sentry reader is meant to be used once an online account holder has logged in to the banking site.After logging in, customers slot their bank debit card into the card reader, which generates a unique code which they mustiness input before making a transaction. Also, retailers and banks are using more fraud screening detection tools and online fraud prevention tools, such as MasterCard Secure encipher and Verified by Visa, which make cards more secure when people are shopping online. This led to phone, internet and mail order fraud losses falling 19 percent from 328.4 million in 2008 to 266.4 million in 2009.EnvironmentalClimate change has become the wizard biggest challenge the world faces at the beginning of the 21st century, and in response Barclays is management increasingly on its work on the environment, which includes both its direct and confirming impacts.Barclays remains affiliated to increasing its energy efficiency, and reducing its hundred measure on an ongoing basis, as well as helping its supply chain reduces its emissions. In 2007, it invested in emissions traffic capability, and moved into the consumer market with new lower-carbon products and services.An example is Barclaycard Breathe, a new card that gives consumers incentives when they buy green products, and donates half its profits to environmental projects. In the wholesale market Barclays Capital has committed to the EU emissions trading market to brings its full range of commodity trading and attempt management expertise to bear to help clients manage their carbon risk. Since 2005 it has traded over 600 million tonnes of carbon credits, with a notional value of over $14 billion.Legal factorsThe global financial crisis resulted in a remarkable tightening of regulation and changes to regulatory structures globally. The changes in the legal framework, policies and banking regulatory action, have an impact on Barclays businesses and e arnings.The market for payment protection insurance (PPI) has been under scrutiny by the UK competition authorities and financial services regulators. In 2006, the FSA published the outcome of its broad industry thematic review of PPI gross sales practices in which it concluded that some firms fail to treat customers fairly and that the FSA would strengthen its actions against such firms. Barclays voluntarily complied with the FSAs request to cease selling single premium PPI by the end of January 2009. On 21st February, the UK government introduced Banking Act 2009 which provides the Authorities with tools to deal with failing banks and building societies. The Banking Act provides a ineradicable and appropriate regime for the resolution of failing banks.It is a major flavour forward in the Governments programme to strengthen stability and confidence in the UK banking system, in the wake of the global instability see by financial markets. In order to discourage excessive risk tak ing by large banks, FSA published its new earnings Code of Practice in August 2009. The code states that firms should not encourage risk taking to generate short-term profit the focus should be on long term success. It required firms to give pay details to FSA so that it can monitor compliance. Barclays discretionary pay awards for 2009 were fully compliant with the FSA Remuneration Code which resulted in an increase in the deferred awards by approximately 70% and greater use ofequity in deferral structures, particularly to cured staff. 100% of the discretionary pay awards for 2009 to its Executive Committee were deferred.RECOMMENDATIONFrom previous chapters it becomes clear that Barclays bank operates in unpredictable and volatile business environment. In such circumstances, it is highly recommended that it should be clear about its strategic framework for the coming years and should maintain a sound financial and organisational pick that anticipates and adapts to the regulator y changes. It can achieve superior growth by diversifying its profit base by geography and by business line. It should focus intensely on cost reduction and risk management. It is required to create the cozy framework, processes and culture to respond rapidly to new opportunities, threats and regulations. It is also required to re-establish trust and relationship with customers by fulfilling their needs with product innovation and customer centric approach.CONCLUSIONThe global economic slowdown and subsequent recession in UK and in many other countries of the world have changed the business environment in substantial way. Barclays Bank operates in a business environment which is highly influenced by political, economical, sociocultural, technological, environmental and legal factors. In order to fence successfully, it has to adapt to changing business environment. Its performance in last five years shows that it has the ability to run the business profitably even in such deteriora ting economic conditions where other players in the market struggled to survive. However, it needs to begin a balanced set of strategic initiatives in such unpredictable and extreme volatile business environment which is beyond the organisational control.REFERENCES* Exploring Corporate Strategy, school text and cases, sixth edition (2002) by Gerry Johnson and Kevan Scholes * http//en.wikepedia.org* http//www.fsa.gov.uk/pubs/other/turner_review.pdf* http//www.thisismoney.co.uk/news/article.html?inarticle_id=469739&in_page_id=2ixzz0lIhv4NoL * http//news.bbc.co.uk/2/hi/business/8479639.stm* http//www.myoffshoreaccounts.com/english/offshore_uk-banking-uk-bank-account * http//group.barclays.com/About-us/Barclays-at-a-glance/Key-facts * http//group.barclays.com/Investor-Relations/Shareholder-information/Annual-Reports * http//en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932010) * www.moneyshop.co.uk//brc-credit-crunch-leading-to-cash-comeback.html * http//www.gciuk.com/en/news/b anking-blues-uk-survey-says-consumers-lose-trust * http//www.hm-treasury.gov.uk/press_16_09.htm* http//www.telegraph.co.uk/finance/personalfinance/consumertips/banking/6267384/Online-banking * http//econsultancy.com/blog/1065-barclays-uses-chip-and-pin-to-combat-online-fraud