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The Markets
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Banks

Barclays hikes profits but steps up cuts

Barclays plans to dispose of more non-core operations

--- updates with more detail, broker comment and share price ---

Barclays (LON:BARC) reported higher first-half profits and said it was ramping up efforts to off-load surplus businesses.

The bank, which is recovering after facing a string of scandals, said adjusted pre-tax profit in the six months to June 30 rose 11% to £3.7bn.

Executive chairman John McFarlane attributed the higher profits to a good performance by its key businesses.

It is focusing on areas such as UK personal and commercial banking, investment banking in Europe and the US, cards and on Africa.

Costs remained under control, it was selling non-core businesses and the group was putting conduct issues behind it, McFarlane said.

Barclays has been involved in controversies such as alleged rigging of the inter-bank lending rate Libor and foreign exchange manipulation.

The scandals sparked the departure of former chief executive Bob Diamond and his replacement by former retail bank chief Antony Jenkins.

But Jenkins has also now departed and McFarlane signalled his intention to speed up the pace of change.

"We need to accelerate the execution of the strategy. There is more that can be done to deliver better returns for shareholders, faster," he said.

Barclays set aside £1.8bn in the first half of the year to compensate customers for mis-selling scandals and fines.

McFarlane is standing in as chief executive until a replacement for Jenkins is found.

Fund managers are reported to have told Barclays they think the bank should look externally, with former RBS (LON:RBS) boss Stephen Hester talked about as a potential candidate.

The bank plans to dispose of more non-core operations.

"We will also act quickly to curtail activity which is marginal or which will not deliver the return on equity we require," he said. "A sensibly planned faster run-down of Barclays non-core will be implemented."

McFarlane, who is standing in as chief executive until a replacement for Jenkins is found, said he was "personally pleased" with progress in its investment bank.

"It has generated a double-digit return in H1, and the challenge for the team is to convert this performance into sustainable economic returns," he said.

He said the group return on equity was 5.9% on a statutory basis, well short of cost of equity, and its cost-income ratio was 70%, which he said was high for Barclays's business mix.

"We need to accelerate growth in earnings, return on equity, and capital generation," McFarlane said.

Barclays said it planned to keep its annual dividend in 2015 at 6.5p, the same as the year before, as it focused on improving business returns.

McFarlane said: "I am not issuing new targets for the group, but can confirm we will adhere to our remaining targets.

"There is a lot we can do to accelerate our progress and the work has already begun."

Shares in Barclays rose 5.1p to 284.7p in afternoon London trading.

Richard Hunter at broker Hargreaves Lansdown said the legacy and fresh provisions for past misdemeanours remain a drag on overall performance and management changes were a concern.

"Despite the uncertainty, the shares have enjoyed a strong run of late, having added 28% over the last year (and 18% in the last six months alone), as compared to a 3% dip for the wider FTSE100. With the group’s focus on its core businesses becoming increasingly clear, the market consensus of the shares as a strong buy should remain intact.”

Broker Investec said the bank's underlying pre-tax profit of £2.1bn was 5% above consensus, reflecting a strong second quarter in investment banking.

Investec said: "There is no grand “strategic reset” though the 2015 dividend will now be held flat at 6.5p (in line with us; consensus 7.7p) to accommodate an expected “acceleration” of non-core run-off. We expect some positive relief today."

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