Barclays income boost cheers investors, makes Brexit provision

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February 21, 2019 2:24 PM

Barclays reported a lower than forecast attributable profit of 3.5 billion pounds ($4.56 billion) for 2018, as it set aside cash to cushion against Brexit losses and its trading business weathered a difficult fourth quarter.

The bank’s shares were up 4.3 percent by 0820 GMT.

Barclays reported a lower than forecast attributable profit of 3.5 billion pounds ($4.56 billion) for 2018, as it set aside cash to cushion against Brexit losses and its trading business weathered a difficult fourth quarter. Barclays did show signs of progress in its under-pressure investment bank, where profit for the full year increased 15 percent to 2.6 billion pounds as its equities trading unit saw income rise 25 percent. The bank’s shares were up 4.3 percent by 0820 GMT.

Barclays Chief Executive Jes Staley is locked in a high-profile tussle over the bank’s strategy with activist investor Edward Bramson, who believes the lender should ditch a costly plan to grow its investment bank and focus on other less risky parts of its business.

Bramson on February 5 sought to ratchet up pressure on the bank by tabling a resolution that would see him win a board seat, a bid which investors said was unlikely to succeed but which has sharpened focus on the performance of the investment bank. The results gave ammunition to both sides in the debate. Staley could point to the investment bank’s return on tangible equity — a key measure of profitability — rising from 2 percent to 7 percent in 2018, close to the overall target of 9 percent for the group in 2019.

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The bank’s fixed income, currencies and commodities trading business weathered the volatile markets of the fourth quarter better than its Wall Street rivals with revenue down 6 percent compared with double digit falls at Goldman Sachs, Citi and JPMorgan. For critics of the investment banking-led strategy, however, there were signs that other parts of the lender are suffering as profits fell 3 percent in the Barclays UK division. The bank also saw a 20 percent decrease in corporate lending income, which it attributed to resources being deployed to higher-returning business elsewhere.

Brexit downside

Barclays’ 150 million pound Brexit provision followed similar moves by HSBC and Royal Bank of Scotland in recent days. Barclays said the provision reflected the lesser of two downside economic scenarios, in which growth would slow to 0.3 percent and the country’s unemployment rise to 5.7 percent. Barclays paid a dividend of 6.5 pence per share and signalled intentions to return more capital via dividend increases and buybacks when it was practical to do so. The bank however reported its core capital ratio fell to 13.2 percent from 13.3 percent a year ago, a dip which is likely to renew a debate over its ability to return more capital to shareholders at a time when rivals Lloyds Banking Group and RBS are ramping up payouts.

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Staley’s total pay package for 2018 fell to 3.36 million pounds, down from 3.87 million pounds the previous year. He was the lowest paid among the four biggest British bank bosses. Including conduct and litigation charges, the bank’s profit of 1.4 billion pounds against a 1.9 billion pounds loss in 2017. Barclays’ International division, which houses its investment bank, reported a profit before tax of 3.9 billion pounds, in line with analysts’ expectations of 3.95 billion pounds. ($1 = 0.7674 pounds)

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