Thursday, April 28, 2011

Barclays Bank PLC ADR

I bought this bank (NYSE-BCS) in April 2000. It was doing quite well earning a total return of 15% per year in US$ until it started to fall apart at the end of 2007. They cut out the dividend in the first part of 2009 and restore a much smaller dividend at the very end of that year. To date, I have earned a total return of 3.5% on this stock in US$.

I have this stock in a US$ account and I only take out money from this account when the US$ to CDN$ is favorable to me. Needless to say, I have not done this lately, as our currency is rather high against the US currency. I have this stock in a US$ account to moderate my currency risk.

When it got into trouble, I paid a lot of attention. I believe that you get out of a stock if it will not survive or that the company is so damaged it can only limp on. However, I kept this because I knew it would survive and come back again. It has been coming back. However, their survival came at a cost. There was a large dilution of the shares of this bank (a 73% increases in shares.)

Also, I know it did not accept government money because it did not want to be told what to do by bureaucrats. One cannot assume that bureaucrats will make better decisions than the company’s officers will. In fact, bureaucrats generally make worse decisions as far as I can see. Government run industries have an awful track record.

I know the reason that the papers gave of management not wanting to give up their peaks and this is why they did not take government money. But the press has a very negative view of business and this would be a typical press remark. And, was the latest crisis the fault of the bankers or us? It was us who could not stop taking out loans (credit or house) which we could never pay back.

If you are investing for the long term, then you are going to have investments where the company gets into trouble at some point. I had a number of companies decrease dividends in 2009. This happens in a recession and/or bear market.

Now, I shall go back to talking about Barclays Bank. According to my spreadsheet, if you had held this stock over the last 5 years you would have lost a lot at a rate of 11.5% per year. If you had this bank for 10 years, you probably would have lost ½ your capital, however, if you include dividend payments, your loss would probably be around 11% or 12%.

It is not all bad news. Revenue for this bank has increased by about 5% per share per year over the past 10 years. Although Book Value per share has decreased since 2008, it is up by 9% per year over the past 5 years and up 6.7% per year over the past 10 years.

Also, even though Barclays’ cash flow and earnings are down significantly, they have not suffered a loss in either over the past few years. The Return on Equity for the end of 2010 was 8.9%.

Currently, I plan to hold on to my Barclay shares.

This is a bank. Barclays is a global financial services provider, engaged in retail and commercial banking, credit cards, investment banking, wealth management and investment management services all over the world. Its web site is here Barclays. See my spreadsheet at bcs.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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