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Barclays' profits almost triple – but chairman admits it still faces challenges Barclays' profits almost triple but chairman says many challenges await
(about 9 hours later)
Barclays is still facing hefty fines and penalties, its chairman admitted on Thursday as the bank reported its profits in 2016 had almost tripled. Barclays tripled its profits last year but is still facing hefty fines and penalties and has cut its payout to shareholders.
John McFarlane said the bank still faces challenges despite the improved performance, driven by dramatic fall in the amount set aside to cover ligation matters. The bank’s chairman, John McFarlane, said that despite the rise in profits from £1.1bn to £3.2bn – fuelled by a fall in provisions for legal matters from £4.3bn to £1.3bn – it still faced further fines and would also have to manage the fallout from Brexit.
The bank – which has been scrambling to repair its reputation since the 2012 Libor rate-fixing scandal – is fighting the US Department of Justice over a decade-old mortgage bond mis-selling scandal and awaiting the outcome of an investigation by the UK’s Serious Fraud Office into the way it raised funds during the height of the banking crisis. The bank is paying out £500m to investors from the 3p a share dividend – as flagged last year. However, it is still handing £1.5bn to staff in bonuses. A total of 364 Barclays staff were paid more than £1m last year, including 11 who received more than £5m.
McFarlane did not spell out the investigations he was referring to when he said: “A number of potentially material legacy conduct matters need to be resolved at acceptable cost.” The bank, which has been scrambling to repair its reputation since the 2012 Libor rate-fixing scandal, is fighting the US Department of Justice over a decade-old mortgage bond misselling scandal. It is also awaiting the outcome of an investigation by the UK’s Serious Fraud Office into the way it raised funds during the height of the banking crisis. It has ongoing Libor investigations by the SFO and authorities in Italy.
He also cited the need to “mitigate the risk of the UK’s exit from the EU” and complete the sale of the bank’s African’s business as among the matters hanging over the bank. McFarlane said: “A number of potentially material legacy conduct matters need to be resolved at acceptable cost.”
“I genuinely believe we can see the light at the end of the tunnel,” said McFarlane. He also cited the need to “mitigate the risk of the UK’s exit from the EU” and complete the sale of the bank’s African’s business as among the matters hanging over the bank. Barclays’ shares initially rose by 3% but later reversed these gains to fall 3% to 227p. In 2015, when the shares were changing hands at 260p, McFarlane promised to double the share price in three years.
A year ago, McFarlane had complained about the fines and taxes imposed on the bank and it cut it dividends to pay for a scaling-back in Africa to focus on the UK and US under new chief executive Jes Staley. A year ago, McFarlane had complained about the fines and taxes imposed on the bank as it cut dividends in half to pay for a scaling-back in Africa to focus on the UK and US under its new chief executive, Jes Staley.
Alongside this year’s annual results, McFarlane raised the prospect of the dividend payout – set at 3p for 2016 and 2017 – being reconsidered once the bank’s fortunes had improved. Staley, who joined Barclays 13 months ago, said he wanted to reach a deal with the Department of Justice over the residential mortgage bond securities misselling scandal on the same terms as those reached by US banks. European bank bosses believe they have been more harshly treated than their US counterparts.
Staley, who axed 15,000 jobs in 2016 in part through a hiring freeze, said it was too early to discuss any changes to the dividend that might take place once the restructuring was completed later this year. The annual report showed that Staley, an American recruited in 2015, received £4.2m in 2016, his first full year in charge.
The annual report showed that Staley – an American recruited in 2015 – received £4.2m in 2016, his first full year in charge. The bank also disclosed that 364 of its staff were paid more than £1m last year, including 11 who received more than £5m. The Robin Hood Tax Campaign, which campaigns for a tax on banks to tackle poverty and climate change, said: “Barclays boasts of trebling profits and making hundreds of their employees millionaires but nothing has improved for most ordinary people since the banking crash. The harsh reality for millions is the daily struggle to make ends meet.”
The bank, often under fire for its huge payouts to staff, has changed the way it accounts for its bonuses. Staley insisted that bonuses were down by 1% to £1.5bn in a year when profits were up. Changes are also being proposed to the way Staley and the finance director, Tushar Morzaria, are paid. They will no longer receive a “salary” but instead receive “fixed pay”, which incorporates their salary and the role-based allowances that were introduced by major banks following the EU pay restrictions that capped bonuses.
Bonuses are spread over three years and Barclays bankers – who got their first payout the year after the bonus was awarded – will now get the first payment a year earlier.
Changes are also being proposed to the way Staley and finance director Tushar Morzaria are paid. They will no longer receive a “salary” but instead receive “fixed pay” which incorporates their salary and the role-based allowances that were introduced by major banks following the EU pay restrictions which capped bonuses.
Barclays intends to give Staley £2.3m of fixed pay for the next three years, half in shares and half in cash. His current pay arrangement involves a £1.2m salary and £1.15m in share-based fixed pay allowances. Morzaria is to get £1.6m in fixed pay, compared with a £800,000 salary and £750,000 in role-based allowances.Barclays intends to give Staley £2.3m of fixed pay for the next three years, half in shares and half in cash. His current pay arrangement involves a £1.2m salary and £1.15m in share-based fixed pay allowances. Morzaria is to get £1.6m in fixed pay, compared with a £800,000 salary and £750,000 in role-based allowances.
Pre-tax profits rose from £1.1bn to £3.2bn, fuelled by a fall in provisions for legal matters from £4.3bn to £1.3bn. Impairment charges for bad debts rose 35% to £2.3bn.
Staley focused on the attributable profit – the bottom line for shareholders – of £1.6bn, an improvement on a loss from a year ago.
The bank is looking at the ways it will need to change its operations – which include a large investment bank – as a result of Brexit. Staley said the bank had operations in Germany and Dublin but no decisions had been made about how it would respond.
“We believe London is the financial centre for Europe today and we believe in the end state it will continue to be,” said Staley, who played down the impact on jobs in London.
The bank’s shares rose by 3% to 242p in early trading. This is below the 260p at which the shares were trading in 2015 when McFarlane promised to double the share price in three years.
Sandy Chen, an analyst at Cenkos, said: “The key proof that the restructuring is working is the improvement in capital ratios.”