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Barclays swings to 2017 loss but shares gain on plans to restore dividend

Barclays plans to restore its dividend in 2018 back to levels before it was cut two years ago
Barclays
Barclays said it has had a good start to the new financial year

Barclays PLC (LON:BARC) swung to a full year loss, reflecting misconduct costs, the impact of winding down its Africa business and a one-off charge stemming from the US tax reform.

However, shares jumped 4% to 211p in early trade as the bank said it would restore its dividend in 2018 back to levels before it was cut two years ago.

READ: Barclays strengthens capital position with further cut to stake in Africa division

The bank posted an attributable loss of £19bn for the year through December 2017 following a profit of £1.6bn the previous year.

Misconduct and litigation costs came to £1.2bn, including a £700mln charge related to the payment protection insurance (PPI) scandal.

The lender made a loss of £2.5bn on selling down its stake in Barclays Africa Group Limited as part of its strategy to focus on the core areas of the business in the UK and the US.

US President Donald Trump’s new tax legislation resulted in a one-off charge of £901mln due to the re-measurement of double taxation agreements.

The return on tangible equity (RoTE) was negative 3.6%, compared to positive 3.6% in 2016.

Total income fell 2% to £21.2bn as revenues decreased in the corporate and investment bank, and in fixed income, currency and commodity trading.

On the upside, pre-tax profit rose 10% on the prior year to £3.5bn and impairments in the UK fell 13%.

Barclays improves balance sheet

Barclays strengthened its capital position to protect itself in the event of an economic downturn and acknowledged uncertainty surrounding US policy changes and Brexit negotiations.

The common equity tier 1 (CET1) ratio rose to 13.3% at the end of the year from 12.4% in 2016, above the bank’s target of 13%. 

The improvement was largely as a result of reducing risk-weighted assets to £313mln from £366mln a year ago, thanks to shedding non-core operations.

However, Barclays was one of the weakest lenders in the Bank of England's stress tests in November. 

Barclays restores dividend

With a stronger balance sheet, Barclays said would raise its dividend to 6.5p in 2018 after keeping the payout unchanged at 3p in 2017. The bank cut payments by 50% in March 2016 in order to provide extra funds to aid its restructuring.

“While we still have a number of legacy conduct issues to address, I am confident in the capacity of this business to generate excess capital going forward, and it remains our 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,” chief executive Jes Staley said.

“As a first demonstration of that intent, we are pleased to be able to announce today the restoration of the dividend to six and a half pence for 2018.”

He said he has been “pleased” with the bank’s performance in first seven weeks of the new fiscal year, particularly in the markets business in CIB where income is tracking above the level reached in 2017 despite the impact of a weaker dollar.

Richard Hunter, head of markets at Interactive Investor, said a dividend yield of 2.7% is "far from generous" in comparison to its peers while the bank's cost to income ratio of 73% (2016: 76%) needs focused treatment. 

"There are some pockets of hope, however," he said, pointing to the bank's ability to generate cash, the improvement in pre-tax profit, the reduction in impairments and the bank's positive outlook.

Investigations and legacy issues

Staley's future is in doubt as he is currently under investigation by UK and US regulators for attempting to unmask a whistleblower.

The bank is also facing a hefty fine in the US for mis-selling mortgage securities and criminal charges in the UK for its emergency fundraising during the height of the financial crisis in 2008.

READ: Barclays charged by SFO over loan to Qatari investors in 2008 fundraising

"Worst case scenario – Barclays is stripped of its banking licences," Neil Wilson, senior market anlayst at ETX Capital, said of the bank's 2008 fundraising, which included a £7.3bn emergency cash injection from Qatar.

"Clearly management and investors are pretty relaxed that it won’t go that far, but there is no room for complacency."

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