A Very Quick Look at Barclays' Earnings

LONDON -- Right now I'm trawling through the FTSE 100 and double-checking for blue chips that may be flattering their profits.

You see, many companies these days report "underlying" earnings, which are calculated by excluding costs the firm deems to be "exceptional." Trouble is, some companies are more cavalier than others when it comes to sweeping awkward expenses away from the headline figures.

Today I'm looking at Barclays (LSE: BARC.L  ) (NYSE: BCS  ) to see if its reported earnings have been distorted significantly by exceptional, one-off, or unusual items. I've extracted the following statistics courtesy of S&P Capital IQ:

Year to 31 December 2007 2008 2009 2010 2011
Profit before unusual items (in millions of pounds) 6,239 2,848 3,001 6,194 6,358
Restructuring charges (in millions of pounds) - - (61) (125) -
Goodwill impairment (in millions of pounds) - 2,294 25 (114) (597)
Asset writedowns (in millions of pounds) (16) (30) - - (12)
Other unusual items (in millions of pounds) - 24 1,620 110 130

While annual figures can provide some insight into how a business has performed, I reckon looking back over several years provides a better view of possible problems in relation to one-off costs.

So between 2007 and 2011, my stats tell me Barclays reported cumulative profits before exceptional items and tax of 24.6 billion pounds. However, aggregate exceptional costs came to 3.2 billion pounds -- equivalent to a notable 13% of cumulative "underlying" profits.

I must admit that I was expecting to find a much higher incidence of one-off items when looking at Barclays' financials. The accounts of banks are notoriously complex, and the last few years have been somewhat, er, turbulent. Yet, there are only a few items of real significance here.

The 2.3 billion pound gain in 2008 relates to an exceptional profit recognized after buying the North American assets of the now defunct Lehman Brothers. The 1.6 billion pound gain the year after mostly relates to a revaluation upwards of the bank's own debt.

However, a closer inspection of recent annual reports suggests that my database source for this series may have had trouble interpreting Barclays' figures. For example, the 1 billion pound charge taken to cover PPI compensation costs last year does not appear in this analysis. So it appears even computers have trouble deciphering the annual accounts of banks!

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Stuart Watson owns no shares of the companies mentioned. The Motley Fool has a disclosure policy.
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  • Report this Comment On October 30, 2012, at 11:01 AM, Teacherman1 wrote:

    I would be a buyer at $9.00 or less.

    They have a lot of "adjusting" to do.

    JMO and worth exactly what I am charging for it.

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