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Takeaway
Barclays' employee salaries referred to as the Compensation and benefits are expected to be £8.4 billion in 2019 - making up 47% of the bank’s £18 billion in estimated Total Expenses for 2019. Although the bank spends the maximum proportion on the salaries, operating expenses, including general and administrative, commission, and restructuring and other charges, are expected to contribute around 39% to the bank’s total expected costs in 2019. The bank has been extremely successful in reducing costs over the years, with the largest British bank slashing costs across all heads, creating £2.6 billion in savings since 2015. This has been helpful in improving its earnings margin (which is revenues net of all expenses expressed as a percentage of revenues) from 0% in 2015 to an estimated 15.5% in 2019 thanks to a combination of stable revenues and lower expenses.
Barclays' Total Expenses were £18.8 Billion, with Compensation and Benefits Expenses of £8.6 Billion, and £7.6 Billion in Operating Expenses
Total Expenses
Breakdown of Barclays' Total Expenses in 2018:
Total £18.9 Bil
Compensation & Benefits £ 8.6 Bil
Operating expenses £7.6 Bil
Income taxes £1.5 Bil
Provision & Other expenses £1.1 Bil
Barclays' Total Expenses Have Decreased From £21.4 Billion in 2015 to £18.8 Billion in 2018 and Are Expected To Further Decline In 2019
Total Expenses
% change in Total Expenses
Barclays’ total expenses have declined 12% since 2015, falling from £21.4 billion to £18.8 billion in 2018 and are expected to decline further in 2019. Litigation and other expenses have been the largest contributor to this decline, with expenses falling from £4 billion in 2015 to £2.2 billion in 2018.Barclays’ total expenses are expected to decline by 4.5% in 2019 due to a 8.1% reduction in Operating Expenses.Moreover, the bank’s total expenses as % revenue have declined from 100% in 2015 to nearly 89% in 2018 and this metric is expected to be around 85% in 2019.
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1. Compensation & Benefits:
Compensation & Benefits have decreased from £8.9 Bil in 2015 to £8.6 Bil in 2018, driven by lower salaries and variable compensation
Compensation Expenses
Compensation Expenses as % of total revenue
Compensation Expense includes fixed components, such as salaries, benefits and the amortization of share-based and other deferred compensation from prior-year awards, and a discretionary variable component (or bonus).Compensation & Benefits is the largest expense driver, accounting for nearly 46% of the bank’s total expenses in 2018.Compensation & Benefits have steadily declined over the last few years, falling from £8.9 billion in 2015 to £8.6 billion in 2018 primarily driven by lower salaries and variable compensation.We expect this metric to further decrease by 2.7% to £8.4 billion in 2019, representing 39.5% of total revenues of £21.3 billion.
2. Operating Expenses :
Barclays' Operating Expenses include 3 key components:
A. Infrastructure Costs
B. Administrative & General Expenses
C. Litigation Conduct & Other Expenses
Operating Expenses
Breakdown of Barclays' Operating Expenses in 2018 :
Total £7.6 Bil (100%)
Infrastructure expenses £3.0 Bil (39%)
Admin & General Expenses £2.5 Bil (32%)
Litigation & Other expenses £2.2 Bil (29%)
Barclays’ Operating Expenses include administrative & general, infrastructure commission, and restructuring and other charges. Operating expenses have declined 21% since 2015, falling from £9.7 billion to £7.6 billion in 2018, led by a £500 million decrease in administrative & general expenses and £1.8 billion decrease in litigation and other expenses.Barclays’ litigation and other expenses have plunged 70% falling from £4 billion in 2015 to around £2.2 billion in 2018. This figure was unusually high in 2015 due to a £2.8 billion charge related to provisions for UK customer redress as well as a £1.2 billion provision related to investigations and litigation including Foreign Exchange.We expect litigation charges to be around £1.8 billion in 2019 mainly due to a pre-tax charge of £1.4 billion from additional provisions for Payment Protection Insurance. Moreover, the bank’s administrative expenses are also on a declining trend, with the expenses witnessing a decline of £526 million over 2015-18. The decrease in administrative expenses was primarily due to lower consultancy, legal and professional fees.
(A) Infrastructure costs have increased from £2.7 billion in 2015 to £3 billion in 2018. As a % of Revenues, Infrastructure costs has increased from 12.5% in 2015 to 13.9% in 2018
Infrastrucutre Costs
Infrastrucutre Costs as % of total revenue
(B) Administrative & General Expenses decreased from £3 billion in 2015 to about £2.5 billion in 2018. As a % of Revenue, Administrative expenses have declined from 13.9% in 2015 to 11.6% in 2018
Administration and general expenses
Administration and general expensesas % of total revenue
(C) Litigation and other expenses have steeply declined over the years, falling from £4 billion in 2015 to £2.2 billion in 2018
Litigation Conduct & others expenses
Litigation Conduct & others expensesas % of total revenue
3. Provision & Other Charges :
Provision & Other Charges Have decreased From £1.8 Billion in 2015 to £1.5 Billion in 2018, Driven By A £300 Million decrease In Provision For Credit Losses
Provision Charges
Provision Charges as % of total revenue
4. Income Taxes:
Barclays' Income Tax Expense has remained stable around £1.1 billion, apart from 2017, when this figure was £2.2 billion. The bank's effective tax rate has been taken as 0% in 2015 as the bank incurred losses in this year
Income tax expense (benefit)
Effective Tax Rate
Barclays' income tax expense has remained stable around £1.1 billion, apart from 2017, when this figure was £2.2 billion due to a one-off net charge due to the re-measurement of deferred tax assets as a result of the reduction in the US federal corporate income tax rate. The bank's effective tax rate was nil in 2015 as the bank incurred losses this year.We expect the bank’s effective tax rate to be around 20% in 2019.
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