BARCLAYS BANK''S GROWTH IN PAST TEN YEARS.

Barclays bank''s growth in past ten years

Barclays bank''s growth in past ten years

The Barclays Equity Gilt Study 2009, which examines the long-term returns on a variety of assets, calls the past 10 years a "lost decade" for shares, where "equities have been the worst performing asset class since 1997, sharply underperforming all other asset classes." The report says"in nominal terms, the -0.3% annualised return from US equities since 1998 is the fourth-worst 10-year return of the past 83 years. Only those 10-year periods ending in 1937, 1938 and 1939 have delivered lower returns. Similarly, over the past 109 years, only the decade ending in 1974 saw a weaker 10-year nominal return from UK equities. For the sake of record, the 1964-74 UK equity return was 1.02%, while the 1998-2008 return was 1.05%." The last consecutive decade in which stocks produced a lower real return than Treasuries, was 1967-77 in the US and 1927-37 in the UK. (Datamonitor 2009, 65-78)

Objective

Barclays says during the past 110 years, there have been some 16, 10-year periods that bear resemblance to the decade just past and like in the past decade in which investors who prudently re-invested their dividends lost money after inflation - each time, they made money in the next ten years, by an average of almost 11% a year even after factoring in rising prices.

Western companies have entered the current recession in their worst financial shape of the entire post war period, the report has warned. Despite a perception that the current crisis is focused on financials and other businesses over-exposed to gearing, the level of debt accumulated and the extent of its substitution for capital investment has created systemic liabilities, said Tim Bond, the report's lead author. (Datamonitor 2009, 65-78)

Background

"In recent years, the non-financial sector has spent considerable sums - more than $2 trillion since the end of 2001 - on purchasing equities," he said. "Indeed, by the fourth quarter of 2007, companies were spending more on equity purchases than capital investment." Regardless of the multiplicity of causes, the macroeconomic impact is clear. (Datamonitor 2009, 65-78)

Literature review

The substitution of debt for equity inevitably weakens the creditworthiness of the corporate sector. The fact of the matter is that the recent boom in debt-equity substitution has left the corporate structure in its worst shape - from a credit perspective - of the entire post war period. From both perspectives, the trend will therefore be of relevance to the banking sector's willingness to lend to businesses," Tim Bond added. He said, that demographic trends across both the US and Western Europe supported a gradual reversion toward higher yields following the lost decade of the late 1990s onwards.

Looking at the number of baby boomers approaching retirement and entering their peak saving years, he said that the curve exactly coincided with US peak equity valuations.

Bond says in the report, that the investment industry pays enormous attention to forecasting corporate profits and the economic cycle, but very little to aggregate ...