Barclays plc (LON:BARC) today reported an increase in full year pre-tax profit that fell shy of analysts’ expectations and cut its dividend as Total income fell and impairment charges rose.
The FTSE 100 lender posted pre-tax profit of £3.2bn in the year to 31 December 2016, almost tripling from £1.2bn the prior year but below the consensus forecast of £3.9bn. The results were supported by an increase in pre-tax profits in the core UK and US businesses by 4% to £6.5mln. Return on tangible equity in the core unit rose to 9.4% from 11.2%.
A Total of £1bn was set aside for customer redress for those mis-sold payment protection insurances (PPI) though it was lower than the previous year’s provisions of £2.7bn.
Credit impairment charges rose to £2.3bn from £1.6bn following a change in the mix of its UK and US cards portfolio, resulting in an 11 basis point (bps) increase in the loan loss rate to 53bps.
The bank cut its dividend to 3.0p per share from 6.5p the previous year as it continued its restructuring.
The common tier 1 equity ratio edged up to 12.4% from 11.4%, which chief executive Jes Staley said puts Barclays "well on track to meet our end-state target and we are well positioned to absorb headwinds over the next few years". Analysts had been expecting 11.8%.
He added: “Certain legacy conduct issues remain and we intend to make further progress on them.” Staley was referring to the US Department of Justice's legal proceedings launched against the bank in December on allegations it deliberatly mis-sold mortgage bonds.
In a conference call following the release of the results, group finance director Tushar Morzaria said the strong capital position also allows the bank to tackle the potential impact of Brexit, political uncertanties and regulatory changes. If another recession were to hit, Morzaria believes the lender won't perform "any worse" than sector peers and may in fact outperform.
"We haven’t changed our risk appetite since the last financial crisis," he told investors, adding that he doesn't feel "unduly nervous about the balance sheet".
Total income fell to £21.5bn from £22.0bn as non-core income dropped £1.8bn to a net expense of £1.2bn.
Total operating expenses rose to £14.6bn from £13.7bn, in part due to appreciation of the dollar and the euro against the sterling.
Barclays increased its bonus payments for the year to £1.0bn from £788mln while the Total incentive awards granted remained broadly unchanged as it reduced its deferred bonuses, commissions and other incentives.
The group also cut its stake in Barclays Africa with an initial sale of 12.2% in May. It has agreed separation terms on Barclays Africa with local management, including £765m of contributions over the period through to completion of the next sale of its stake in the business to below 50%.
Its restructuring of the bank, which included selling off non-core units, resulted in a reduction of risk weighted assets (RWAs) of £22bn to £32bn. The lender has also brought forward the closure of non-core units by six months to 30 June, which will lower RWAs to £25bn. Barclays will reintergrate the RWAs into the group once completed.
Non-core units generated a loss before tax of £2,8bn in 2016, compared to £2,60bn a year ago.
In fiscal year 2017, the group expects a non-core loss before tax of about £1bn, excluding fair value gains or losses on the Education, Social Housing, and Local Authority portfolio. A larger portion of the loss is expected in the first half due to continued exit costs.
Staley said the bank has started move on from the restructuring of Barclays and focus on core profitable parts of the business including Barclays UK and Barclays International.
Shore Capital said while the capital position rose more than it had estimated, the pre-tax profits fell short of expectations.
The broker reiterated its 'hold' rating on the bank with a target price 235p, saying the shares have risen 85% since reaching a post EU referendum low of 127p. ShoreCap said shares have been boosted by the UK economy performing better than expected since Brexit referendum and improving optimism following Donald Trump’s victory in the US election.
"However, with the shares currently trading at a slight premium to our last published fair value estimate of 225p (provisionally upgradeable by 5-10% on roll forward), we re-iterate our neutral stance having only recently downgraded recommendation from 'buy' to 'hold'.
Shares rose 2.06% to 240p in late morning trade .
-- Adds comments from investor conference and broker comment, updates share price --