Barclays throws money at its many problems
The bank said on Thursday that year-to-date trading income had improved thanks to increased market volatility.
LONDON - Barclays is solving one of its four big problems.
Chief Executive Jes Staley said on Thursday he plans to more than double 2018 dividends to 6.5 pence per share – about the level where he cut payouts in 2016.
Great - except there are still three other headaches.
1. One is that the bank’s performance is still not good enough.
Admittedly Barclays hit a cost target of £14.2 billion in underlying operating expenses, and a headline minus-3.6% return on tangible equity becomes 5.6% when misconduct and litigation costs and a revaluation of Barclays’ US tax assets are stripped out. But overall revenues still fell 2% year-on-year.
2. A dodgy top line complicates Staley’s pledge to attain a 9% return on tangible equity by 2019.
The bank is guiding to £13.8 billion of operating costs by 2019 to do so. Assuming flattish impairments of £2.7 billion and a 30% tax rate, it would generate net income of £4.6 billion or around 26 pence per share. Investec analysts reckon Barclays’ tangible equity will be worth 278 pence per share in 2019, meaning a 9.4% return on tangible equity. But all this assumes, on a projected cost-to-income ratio of below 60%, revenue of at least £23 billion – a 10% rise on 2017.
3. Higher interest rates might help.
So, would a continuation of rising revenue in the US cards business and the UK retail bank. But it will definitely require better from the misfiring investment bank, which made a pathetic 1.1% return on tangible equity thanks largely to a 29% year-on-year drop in trading revenue.
The other two problems aren’t even financial. Barclays needs to settle – or win – litigation with US regulators over historic missold mortgage securities without incurring heftier one-off charges. And it needs Staley to not get ousted by UK authorities investigating his attempts to unmask a whistleblower.
The bank said on Thursday that year-to-date trading income had improved thanks to increased market volatility. But until Barclays’ traders can deliver over a longer period and outstanding legal issues are resolved, the lender’s discount to tangible book value will persist.