The Zacks Analyst Blog Highlights: Barclays, Citigroup, Goldman Sachs Group, Morgan Stanley and JPMorgan Chase

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May 12, 2014, 09:30 ET

CHICAGO, May 12, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Barclays PLC (NYSE:BCS-Free Report), Citigroup Inc. (NYSE:C-Free Report), The Goldman Sachs Group, Inc. (NYSE:GS-Free Report), Morgan Stanley (NYSE:MS-Free Report) andJPMorgan Chase & Co. (NYSE:JPM-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Friday's Analyst Blog:

Barclays to Slash 14K Jobs, Create 'Bad Bank'

ADRs of Barclays PLC (NYSE:BCS-Free Report) were up nearly 7.4% on Thursday, with the market welcoming the moves that the company is slated to undertake to regain profitability. The U.K.-based bank plans to slash 14,000 jobs by this year-end and a total of 19,000 by 2016. Further, the company will be restructuring its entire business and create a 'Bad Bank,' as well.

Barclays will presently focus more on retail banking business, while selectively avoiding risky and volatile investment banking operation. This will lead to 7,000 job cuts in the Investment Bank by 2016. Additionally, over the long term Investment Bank will account for a maximum of 30% of the company's risk-weighted assets (RWAs), down from nearly 50% at present.

Moreover, Personal and Corporate Banking segment will have the same size as the Investment Bank, while both Barclaycard and Africa will account for 20% of RWAs each. Also, the company identified several non-core operations as a part of its strategic review and decided to create a bad bank named – Barclays Non-Core.

Barclays Non-Core will comprise part of investment banking operations which the company plans to exit (physical commodities, non-core derivatives and certain emerging market products), European retail business and non-core banking operations in Europe and the Middle East. At present, Barclays Non-Core will have £115 billion ($195 billion) of RWAs, which is targeted to be downsized to £50 billion by 2016.

Consequently, this will aid in reducing the segment's drag on ROE to 3% from the present 6%. On the whole, Barclays targets ROE of 12% by 2016 for its core operations.

As a result of all these initiatives, the company would incur expenses of £800 million as a part of cost to achieve Transform, which is in addition to £2.7 billion already announced in Feb 2013. Further, Barclays lowered its 2014 expense guidance to approximately £17 billion, down from the prior outlook of £17.5 billion. Moreover, by 2016, the company anticipates the expenses for its core operations to be around £14.5 billion.

Apart from this, the company expects the dividend payout ratio in the range of 40-50% by 2016, though payout ratio will likely remain at 40% until it achieves common equity tier-1 ratio of 10.5% by 2015.

Amid sluggish economic environment and stringent regulatory requirements, Barclays' plans to realign its operations to better manage the organization are commendable. Since last year, the company has been striving hard to mitigate macroeconomic pressure through restructuring, though without much results.

Nevertheless, we expect that the company's latest restructuring initiatives to improve efficiency will help in enhancing its performance. Further, with more focus on retail banking, Barclays is attempting to regain stability in its earnings.

Barclays currently carries a Zacks Rank #5 (Strong Sell).

No Relief for Citi in Risky CDOs Lawsuit

As per a report in Bloomberg, legal hassles continue to bother Citigroup Inc. (NYSE:C-Free Report), as a New York appeals court recently upheld an ongoing lawsuit against the banking behemoth. The case is associated with the sale of faulty mortgage backed securities.

The ruling favored Loreley Financing, a group comprising nine investment firms that had filed the lawsuit way back in Jan 2012. Though these investment firms can proceed with the charge of fraud on Citigroup, they cannot sue the company for undue profit from the sale of collateralized debt obligations (CDOs).

Loreley Financing alleged that Citigroup had sold risky CDOs worth nearly $1 billion which resulted in huge losses for these investment firms. Moreover, Citigroup had the knowledge that these securities were designed to fail. Hence, to secure itself against any potential future losses the bank had purchased credit default swaps against the CDOs.

Despite the odds against it, Citigroup had placed its request to dismiss the case as Loreley Financing was unable to prove that their decision to buy the securities was based on the bank's documents. The appeals court, however, overruled the plea and added that the disclaimer in the bank's document did not specify the risks associated with the CDOs.

A similar ruling had recently favored Basis Capital Funds Management Ltd., an Australian hedge fund. The case was connected to the sale of the The Goldman Sachs Group, Inc.'s (NYSE:GS-Free Report) CDOs also known as Timberwolf and Point Pleasant.

Financial companies including Citigroup, Goldman, Morgan Stanley (NYSE:MS-Free Report) and JPMorgan Chase & Co. (NYSE:JPM-Free Report) continue to pay for their malpractices in the pre-crisis period. Though this weigh against their profitability, it also keeps them cautioned against any further wrong doings in future. This paves the way for a relatively secured investment environment in the upcoming quarters.

Citigroup currently carries a Zacks Rank #3 (Hold).

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