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Barclays set to boost shareholder returns as end of crisis-era misconduct charges draws near

Fines for mis-selling PPI, rigging interest rates and selling mortgage-backed securities have wiped billions from Barclays’ earnings in recent years, but those issues are almost behind it

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The deadline for PPI, which has cost UK banks billions in fines, is 29 August

Barclays PLC (LON:BARC) has more than doubled its annual dividend payout and promised to return even more to shareholders going forward.

Last March, the FTSE 100 bank struck a deal with US authorities to settle a probe into how it sold the sort of mortgage bonds that fuelled the financial crisis.

READ: Barclays weak ahead of results

The £1.4bn (US$2bn) settlement, which was significantly less than the £3.8bn (US$5bn) the DoJ had originally demanded, moved Barclays a step closer to resolving its litany of crisis-era misconduct charges.

Litigation and misconduct charges, which also included punishments for rigging interest rates and mis-selling payment protection insurance (PPI), have wiped out billions of earnings in recent years.

But with the major issues now behind it, the PPI deadline fast approaching and Barclays not setting aside any more compensation money, the bank plans to return more cash to shareholders.

Progressive dividend policy

The lender has hiked its dividend to 6.5p for the year just gone (2017: 3p), but chief executive Jes Staley has hinted that will continue to rise over the coming years.

 “Going forward the principal calls on future earnings should now returned to shareholders and investing to grow the business,” said Staley in Thursday’s results announcement.

“We will use the strong capital generation of the bank to return a greater proportion of those earnings to shareholders by way of dividends and to supplement those dividends with additional returns, including share buybacks. I am optimistic for our prospects to do more in 2019 and beyond.”

2018 profits flat

The DoJ fine, plus a couple of other charges, held back Barclays’ profits last year, with pre-tax profits remaining flat at £3.5bn in the 12 months ended 31 December. Total income was also broadly flat at £21.1bn (2017: £21.1bn).

Excluding the one-off costs, profit before tax jumped 20% to £5.7bn, driven by an improvement in credit impairment charges and a reduction in operating expenses.

Barclays’ CET capital ratio – the core measure of a bank’s financial strength – was 13.2% - in line with its target of 13%.

‘Significant’ year

“2018 represented a very significant period for Barclays,” added Staley, commenting on the results.

“In the course of the year, having resolved major legacy issues and reduced the drag from low returning businesses, we started to see the earnings potential of the bank, as the strategy we have implemented began to deliver.

“The progress made on these key measures demonstrates that our plan is working and we have a strong foundation on which to achieve our returns targets for this year and next.”

Barclays shares rose 3.5% to 166.6p at the opening bell on Thursday.

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Quick facts: Barclays PLC

Price: 113.54 GBX

LSE:BARC
Market: LSE
Market Cap: £19.69 billion
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