Barclays PLC (LON:BARC) swung to a first-half loss as the company sold down a further stake in its Africa unit and set aside an extra £700mln for the payment protection insurance (PPI) mis-selling scandal.
Shares dropped 1.44% to 205.59p in afternoon trading.
As part of its strategy to focus on its core operations in the UK and the US, Barclays sold a 33.7% interest in the Africa business, making a £1.4bn loss on the disposal and booking an impairment of £1.1bn.
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In the six months to the end of June, Barclays made an attributable loss of £1.2bn, in a sharp reversal from the profit of £1.1bn in the corresponding period a year ago.
Excluding the impact of the sale of its holding in Barclays Africa, the company achieved a 13% increase in first half pre-tax profit to £2.3bn.
Barclays completes restructuring
Chief executive Jes Staley said the restructuring of the business is now complete after selling down its non-core businesses to below its target of £25bn in risk weighed assets, six months ahead of schedule.
The remaining non-core assets have been folded back into the core, meaning results from the two areas of the group will no longer be reported separately.
“Our business is now radically simplified, the restructuring is complete, our capital ratio is within our end-state target range, and while we are also working to put conduct issues behind us, we can now focus on what matters most to our shareholders: improving group returns,” Staley said.
“We have accordingly established a new target today which is to achieve a greater than 10% group return on tangible equity over time.”
In the first half, return on tangible equity was 4.6%, compared to 4.8% in the same period a year earlier, reflecting the loss and impairment on the disposal of Barclays Africa and the extra provision for PPI claims.
Total income drops, core profits hit by weaker pound
Total income fell 1% to £10.8bn, including a 10% reduction in negative income in the non-core business and a 2% decrease in the core, mainly as a result of the sale of the bank’s share of Visa Europe Limited in the Barclays UK division.
Barclays boosted its capital, with the Common Tier 1 (CET1) ratio rising to 13.1% from 12.4%, as the benefit of selling down its Africa arm mitigated PPI charges, pension contributions and the redemption of preference shares in US dollars.
The lender said pre-tax profits in the core business fell 25% to £2.9bn due to the impact of PPI costs and a weaker pound against the dollar and the euro since the Brexit vote last June. The exchange rate of the pound to the dollar had a 12% adverse impact while the pound to the euro had a 10% impact.
The non-core business saw an improvement with the loss before tax falling to £647mln from £1.9bn, due to lower operating experience, the non-recurrence of impairment associated with the valuation of the French retail business and a £189mln gain on the sale of Barclays Bank Egypt.
Barclays left its dividend unchanged at 1.0p per share. For the full year, it expects a dividend of 3.0p, as previously stated.
Barclays trying to put misconduct issues behind it
Staley is being investigated by the Financial Conduct Authority and the Prudential Conduct Authority for trying to unmask a whistleblower. Barclays said the investigation is ongoing and the bank and Staley are “co-operating fully” with the regulators.
Barclays is also being investigated for its involvement in manipulating the London interbank offered rate (Libor) and euro interbank ofered rate (Euribor).
"Barclays Bank plc continues to respond to requests for information from the Serious Fraud Office in relation to its ongoing Libor investigation, including in respect of Barclays Bank plc," the group said. The investigation by the prosecutor's office in Trani, Italy also remains pending."
Mixed performance by Barclays
"This is a perplexing set of results, the bad bank is getting better, but the good bank is getting worse," said Laith Khalaf, senior analyst at Hargreaves Lansdown.
"The sale of Barclays Africa and more PPI costs are the main culprits for the bank’s woes so far in 2017."
Khalaf also highligted the company's pension deficit growing to £7.9bn from £3.5bn at the last funding valuaion in 2013, mainly due to falling gilt yields that will mean Barclays will need to pay an extra £4.5bn into the pension scheme over the next 10 years. The lender has paid £620mln of deficit reduction payments so far in 2017.
"However in the madcap world of valuing pension liabilities, it’s entirely possible that the deficit may fall by the time the next valuation comes round in 2019, if interest rates have risen by then," the analyst said.
Shore Capital reiterated a 'buy' rating on the stock, saying it sees fair value at 240p.
"Barclays’ interim results are worse than expected due to weaker than anticipated income performance and a further material PPI," said ShoreCap anlayst Gary Greenwood.
"We expect the shares to respond negatively this morning, but would see this as a buying opportunity given the stock is trading at a discount to book value."