It has been a year shareholders of Barclays (LSE: BARC), and Glencore (LSE: GLEN) would rather forget.
2015 has been yet another year of change for Barclays. The bank has re-jigged its restructuring strategy once again, has brought in yet another CEO and continued to sell down assets, but a return to growth has remained elusive. That said, the bank has made some progress cutting costs, and the group continues to dispose of non-core assets. Still, the market remains unimpressed and has marked down the bank’s shares by 8% this year, excluding dividends.
The past 12 months has been even more challenging for Glencore. As commodity prices have crashed to new lows, the commodity trading house has been forced to embark on a drastic cost-cutting programme and ask shareholders for more cash to bolster its bruised balance sheet. But even after raising $2.5bn from investors, as part of its $10bn debt reduction plan, Glencore’s debt pile still amounts to more than $30bn. The company’s shares are down by around 73% this year, so the market clearly believes that there’s further pain to come for the miner.
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Cloudy outlook
Barclays will be hoping that next year some of the bank’s actions to curtail costs and improve profitability will start to pay off. That said, Barclays has been floundering for years. The bank has proven time and again that it lacks a coherent strategy, and there’s no indication that the group will be able to convince the market that it is making progress next year.
The biggest headwind the group is facing is the requirement to separate its retail and investment banking operations before the end of the decade. Management expects the ring-fencing costs to total around £1bn, £100m of which will be spent this year. An additional £400m will be spent putting the ring-fence in place during 2016, and up to £500m will be spent separating retail and investment bank operations after 2016.
As a result of these added costs, Barclays has been forced to raise its guidance for core costs and lower the group’s return on equity — a key measure of bank profitability — target by 1%, from 12% to 11%.
Even if Barclays meets City expectations for growth this year, the bank’s earnings will have fallen by a fifth since 2010. City analysts are currently expecting the troubled bank to reported earnings per share of 22.3p for full-year 2015. Based on these figures, Barclays is trading at a forward P/E of 10.2.
Bleak outlook
It looks as if Glencore is facing another tough year next year, as the miner struggles with falling commodity prices. Unfortunately, it’s almost impossible to put a value on Glencore’s shares right now. Some analysts have speculated that if commodity prices fall further, or remain at present levels for an extended period, Glencore will lose access to much-needed short-term financing, which would be game over for the company.
So, as it’s impossible to tell what the future holds for the enterprise, it could be wise to stay away.
