Barclays swings to net loss but promises bigger dividend in 2018

Barclays declared its intention to more than double dividend payouts in 2018 to 6.5p per share after lower costs helped lift profits last year - though they were still slightly short of analyst's forecasts.

The bank confirmed a 3.0p payout for 2017, as expected, as it reported 10% increase in annual profit to £3.5bn but an attributable loss of £1.9bn after costs associated with the sale of its African subsidiary sale and US tax reforms. Adjusted profit before tax and material items increased 23% to £4.5bn, which was shy of the £4.7bn consensus.

Profits growth was driven by positive operating jaws, the difference between the rate of revenue growth and that of cost growth, as operating expenses decreased 5% to £15.5bn even including litigation and conduct charges of £1.2bn.

This more than offset the 2% decline in total income 2% to £21.1bn from reduced inflow at Barclays International and the head office, while impairments were broadly stable at £2.3bn.

Barclays International income fell 4% to £13.4bn and profit before tax by 22% to £3.28bn, as the Corporate and Investment Bank (CIB) faced weak market conditions, while operating expenses increased 4% and credit impairment charges increased 11%.

Profit increased to £1.747bn from £1.738bn at Barclays UK, as total credit impairment charges and other provisions fell 13%, more than offsetting the 2% decline in income despite a growing mortgage book. PPI provisions were £300m lower year-on-year at £0.7bn, which was unchanged from the third quarter.

The group swung to a statutory loss per share of 10.3p from EPS of 10.4p last time, resulting in a reported return on tangible equity of -3.6%. Excluding material one-off items, the RoTE was 5.6%, which management want to increasing to at least 9% in 2019 and 10% in 2020.

Chief executive Jes Staley characterised 2017 as "a year of considerable strategic progress", with the sell down of the shareholding in Barclays Africa, closure of the non-core bank, the creation of the UK ring-fenced bank and formation of a 'service company' to drive operational efficiencies, which altogether means, he said, "in terms of size and structure, we are now the diversified transatlantic consumer and wholesale bank we set out in our strategy in March 2016".

He said the increase in profit was "a result of our team's focus on execution", including a digital banking milestone of a ten millionth customer, increased banking fee share in CIB, strong income from the consumer, cards and payments business, and perhaps above all continued capital generation that saw the CET1 ratio stand at 13.3%.

"Although we are only seven weeks into the first quarter, and it is too early to offer formal guidance, we are pleased with the start to the year, and in particular in the markets businesses in CIB, where income is tracking above the level for the corresponding period in 2017 in dollars, and also in sterling, despite the weaker dollar we are currently experiencing."

He acknowledged there were still a number of legacy conduct issues to address but said it remains the board's intention over time "to return a greater proportion of that excess capital to shareholders through dividends, and other means of capital distribution, including share buybacks", with the first demonstration of that intent being the restoration of the dividend to 6.5p this year.

Barclays shares rose 4% to 210.6p in early trading on Thursday.

Adjusted profits were slightly below consensus, noted analyst Gary Greenwood at Shore Capital, though he said the core tier 1 ratio is stronger than expected and the announced dividend of 6.5p per share in 2018 is better than consensus forecast of 5.2p.

"In addition, the group has re-iterated all of its medium-term financial targets albeit noting that the percentage group effective tax rate will be lower than previously guided as a result of the impact if US tax reform. Finally, the group notes that CIB Markets income is running ahead of the prior year comparative for the current year-to-date. On balance, we expect this statement to be taken positively."

Neil Wilson at ETX Capital highlighted the issues that remain: "Staley’s future remains a doubt – the FCA investigation over the whistleblowing case is due soon. Meanwhile a far more serious threat looms in the shape of the SFO’s investigation into Barclays’ 2008 emergency fundraising. Worst case scenario – Barclays is stripped of its banking licences. Clearly management and investors are pretty relaxed that it won’t go that far, but there is no room for complacency."

He also noted Barclays grew its mortgage portfolio and saw total credit impairment charges and other provisions down 13%, but that trading revenues at the CIB suffered a poor fourth quarter like all the big banks, though it looked as though Barclays did a bit better than its US peers.

He said there was "a bit of ground to make up" if the bank is to achieve its RoTE targets.