Case Study on Barclays Bank
This case study paper will analyze the economics of Barclays, one of the largest financial providers in the UK and in the world. It will also use Barclay’s example to illustrate the peculiarities of banking industry functioning. Overview of the Business
Barclays is an international financial services provider operating in more than 50 countries and serving more than 42 million customers worldwide. It engages in commercial banking, investment banking, wealth management and asset management. Its commercial banking arm offers services to British and international customers, including current accounts, savings accounts, mortgages, insurance, credit cards and consumer loans. It has a majority stake in Absa, a major South African bank. It has recently acquired Russia’s Expobank and announced its intention to buy Indonesia’s Akita. Barclays’ investment banking and investment management business cluster consists of Barclays Capital, Barclays Wealth and Barclays Global Investors. Barclays Capital is an investment bank that also offers consultancy, financing and risk management services. Barclays Wealth provides private banking, asset management, stockbroking, offshore banking, and wealth structuring and financial planning services. Barclays Global Investors is one of the world’s largest asset managers and providers of investment management products and services. Barclays’ net income amounted to £23,000 million in 2007, up from £17,333 two years earlier. Earnings per share constituted 68.9p, and return on equity was 20.3%. However, the results for the first half of 2008 were disappointing, profits being 33% down. While insignificant growth was delivered by Barclays’ commercial banking division, Barclays Capital profits fell 68%, and Barclays Global Investors profits were 32% less than in the second half of this year. After the company refused to buy Lehman Brothers and the latter filed for bankruptcy, Barclays acquired Lehman’s core American and Canadian investment banking and capital markets businesses for £940 million Hit by the global financial crisis, the company agreed to participate, together with seven other large UK financial institutions, in the £500 billion government Special Liquidity Scheme (Farrell, 2008). Barclays’ business model will be analyzed using Porter’s Five Forces Model - Suppliers: Given the nature of the banking industry, Barclays’ suppliers are its customers at the same time. Individuals and companies depositing money with Barclays act as suppliers of liquidity. Supplier concentration is not a serious threat, since Barclays serves over 42 million customers and clients worldwide. There is little threat of forward integration: most Barclays’ customers/suppliers are individuals or small companies. There is no differentiation of inputs: money is the only input. Importance of volume to suppliers is high, since banks offer better deals for larger sums of money deposited. Switching costs are medium to high, since banks use a variety of methods to secure long-term contracts and retain their customers/suppliers. Conclusion: low to medium suppliers bargaining power
- Buyers: Customers of Barclays are generally dispersed; however, there are certain areas of Barclays’ activities (such as wealth management) where customers are more concentrated and powerful. There is little differential advantage in the industry given the similarity of services banks offers. There is no backward integration threat. Buyer switching costs are medium to high, as outlined above. Banks also attempts to offer their customers integrated financial solutions to discourage switching. At the same time, availability of existing substitute products is high, and buyers are very price-sensitive. Conclusion: low to medium buyer bargaining power - New Entrants: In the current situation, there is little threat of new entrants, since banking is regarded as a risky business. The trend is towards greater...
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