UK Edition
Barclays profits jump as legal and conduct costs slide
Barclays' turnaround plan will be completed in a matter of months, its boss has revealed, after the bank posted annual profits that nearly trebled to more than £3bn.
Jes Staley, who took the helm at Barclays in December 2015, said its so-called non-core division, which houses businesses that will either be sold or shut, will be closed at the end of June, six months ahead of schedule.
It came as Barclays reported a jump in pre-tax profits to £3.23bn from £1.15bn in 2015 after the bank paid out less to settle litigation and to the victims of the payment protection insurance mis-selling scandal.
Mr Staley has been selling off businesses in Africa and Asia to focus the lender on Britain and the US. Last March, Barclays revealed its dividend would be slashed and last year it shed 15,000 jobs.
Cutting the shareholder payout to 3p-a-share from 6.5p in 2015 was a “very difficult decision” that “was to allow to us accelerate the closure of non-core,” the Barclays boss said today. “Underlying that was a passionate belief that we need to get Barclays beyond the restructuring.”
The bank is “now just months away from completing” that overhaul, Mr Staley said, adding that he was “more optimistic than ever for our prospects in 2017.”
Nevertheless, Barclays’s numbers split analysts, who had forecast bigger pre-tax profits of about £4bn. Joe Dickerson, of Jefferies, said the market would not upgrade forecasts following the results, which did not provide guidance for the bank’s performance in 2017.
Mr Staley also said it was too soon to discuss lifting the dividend. Shares in the bank closed down 2.6pc at 209.05p, having earlier risen as much as 3.9pc.
It came as Atlas Merchant Capital, an investment vehicle co-founded by former Barclays chief Bob Diamond, announced it had acquired Greek business Credicom Consumer Finance Bank for an undisclosed sum. Mr Diamond left Barclays amid the Libor rigging furore.
Barclays's common equity tier one ratio, an important measure of its financial strength, stood at 12.4pc at the end of 2016, much better than the 11.8pc the market had forecast.
In the Bank of England’s stress test last November, Barclays came up short after regulators found it had “some capital inadequacies”. But Mr Staley said its results had “taken off the table a question we got quite often last year” of whether the bank would need to raise capital.
It will have provided some comfort to investors still nervous about the bank’s prospects, including ongoing legal problems. It has already been hit with hefty fines for Libor and currency rigging in recent years.
In December, Barclays failed to reach a settlement with the US Department of Justice over allegations it mis-sold toxic residential mortgage-backed securities, which contributed to the financial crisis. It now faces a lawsuit.
“Obviously we would like to settle with the Department of Justice,” Mr Staley said. “What we were hoping to settle on is a settlement that was consistent with our read of how the settlements were arrived at with the US firms. We couldn’t get there.” Last year, Goldman Sachs agreed to a $2.385bn penalty and a further $1.8bn in consumer relief.
Barclays also faces rising bad debts, with impairment charges rising by £611m to £2.37bn last year, another worry for shareholders.
The overall bonus pool for employees dipped 1pc to £1.5bn in 2016, while Mr Staley himself took home £4.2m, including a £1.3m bonus. That compares with around £500m that Barclays is returning to investors through its dividend for 2016, although Mr Staley said the fact the bonus pool shrank in a year when profits rose “should be a good thing for our shareholders”.
The lender’s investment bank was cut-back significantly under his predecessor Antony Jenkins but Mr Staley has changed tack and sought to stabilise the business, which has paid off. Barclays International, which incorporates the investment bank, enjoyed a 28pc rise in pre-tax profits to £4.2bn last year.
While Mr Staley admitted that “have no doubt, Brexit is an enormous uncertainty”, he nevertheless insisted that London will remain a financial centre. The bank has operations in Ireland and Germany that it could bulk up if it needed to move staff once the UK leaves the EU, although he added: “We don’t believe that Brexit is going to result in a significant move of people away from London.”
The Barclays boss added that he was in favour of the Dodd-Frank act, 2,300 pages of legislation which new US president Donald Trump has pledged to dismantle. Barack Obama introduced the law to avoid another financial crisis, and tearing it up could prove problematic for Mr Trump is it would require the backing of Congress.
“We are managing the business on the assumption that Dodd-Frank will stay,” Mr Staley said. “We think that the new capital requirements and liquidity requirements for banks have made the banking industry safer overall.”