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Barclays investment bank comes good

The banking group has been under siege by activist investor Edward Bramson
February 21, 2019

Barclays (BARC) full-year numbers represent a point scored for chief executive Jes Staley and his decision to keep faith in the group’s investment banking operations. The corporate and investment banking business fared better than US rivals during a tumultuous fourth quarter, despite recording a 2 per cent decline in markets revenue. Over the full-year, equities trading revenue jumped by a quarter, which together with a reduction in litigation and conduct charges/impairment releases boosted returns on average allocated tangible equity to 6.9 per cent, from just 1.1 per cent in the prior year.

IC TIP: Buy at 166p

The $1.4bn (£1.1bn) settlement with the US Department of Justice (DoJ) relating to mis-selling of residential mortgage-backed securities increased litigation and conduct costs. After stripping out those costs, adjusted pre-tax profits rose a fifth to £5.7bn thanks to a reduction in operating expenses and impairment charges. The latter – which declined by more than a third – was despite the lender taking a £100m charge during the final quarter due to UK economic uncertainty.

Income at the core UK operations was flat as lower personal banking revenue offset gains in business banking and Barclaycard Consumer UK. Higher growth in secured lending and the integration of the Education, Social Housing and Local Authority portfolio of loans squeezed the UK net interest margin, which declined 26 basis points to 3.23 per cent. However, litigation and conduct costs for that division fell by more than a third, boosting pre-tax profits by 12 per cent to £2bn.  

Analysts at Shore Capital are forecasting adjusted net tangible assets of 273p a share at the December 2019 year-end, up from 262p in 2018.

BARCLAYS (BARC)   
ORD PRICE:166pMARKET VALUE:£28.4bn
TOUCH:166-166.18p12-MONTH HIGH:220pLOW: 145p
DIVIDEND YIELD:3.9%PE RATIO:18
NET ASSET VALUE:365pLEVERAGE:20.2
Year to 31 DecTotal operating income (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201425.82.26-0.76.5
201522.01.15-3.76.5
201621.53.239.33.0
201721.13.54-10.33.0
201821.13.499.46.5
% change -1-+117
Ex-div:28 Feb   
Payment:5 Apr