LONDON (Alliance News) - Barclays PLC Tuesday said it is now targeting a higher leverage ratio after reaching its 3.0% target six months ahead of schedule, but it saw its shares decline after announcing a higher bonus pool in its investment bank while also cutting tens of thousands more jobs.
In the bank's full-year earnings release Tuesday, Barclays said 2014 will be another year of transition as it continues to shrink its balance sheet, particularly in its investment bank.
Barclays said it plans to cut 10,000 to 12,000 jobs as it continues to target lower costs in the coming years, with about 820 senior management set to leave the bank. About 400 of those senior management cuts relate to Barclays' investment bank.
The bank, which last year turned to shareholders in a GBP5.8 billion fundraising and issued additional Tier 1 securities after the Prudential Regulation Authority said it must attain a 3.0% leverage ratio by June 2014, said it had more or less met the regulator's demands ahead of schedule as it has a leverage ratio of just under 3.0%.
It said it is now targeting a PRA leverage ratio of 3.5% by the end of 2015 and a range of 3.5% to 4.0% beyond 2015, as Chief Executive Antony Jenkins said the bank aims to better prepare for regulatory requirement in the future. Since June last year, Barclays PRA leverage exposure has fallen by some GBP196 billion to GBP1.363 trillion, with about GBP55 billion of that down to positive foreign exchange movements.
The bank is now targeting a further reduction to GBP1.300 trillion by 2015, which it expects to result in "a minimal impact on current revenues" but result in "foregone revenue" of around GBP300 million in 2015.
The leverage ratio, which isn't adjusted for riskiness of assets and is meant to act as a sort of catch-all stop gap to complement other regulatory requirements on capital, has attracted much interest and speculation in recent times. Some commentators expect further increases in the minimum ratio as regulators act to make banks more secure in the wake of the financial crisis.
Barclays said it made a GBP17 million pretax profit in the fourth quarter of 2013, compared with a GBP165 million pretax loss a year earlier, meaning the bank has had four consecutive quarters of profitability before tax.
However, the bank's profitability was significantly lower than in the third quarter, when it made a GBP1.17 billion pretax profit. Its investment bank booked a GBP329 million pretax loss in the quarter, as it incurred significantly higher operating expenses and lower income on the back of a fall in fixed income, currencies and commodities business revenue.
Its FICC revenues remained weak in comparison with 2012 figures, but actually improved compared with the third quarter, placing it favourably in relation to the bank's peers.
As noted in the bank's unscheduled update on Monday, Barclays made a GBP2.87 billion pretax profit for 2013, compared with GBP797 million in 2012.
Adjusted pretax profit, which excludes a number of charges and provisions and is meant to give a better idea of the bank's underlying business, fell by 32% to GBP5.17 billion because of costs associated with Transform, the bank's turnaround plan to increase its return on equity and to cut future costs.
"In late December 2013, we incurred GBP331 million of charges for litigation and regulatory penalties [in the investment bank] which impacted income and costs," Jenkins said, "the latter of which drove [adjusted] operating expenses higher than the GBP18.5 billion guidance excluding the cost to achieve Transform, we provided earlier."
In the end, Barclays reported GBP18.68 billion in adjusted operating expenses excluding Transform, slightly exceeding its GBP18.5 billion guidance.
Despite the fall in the bank's adjusted profitability, Barclays increased its bonus pool to about GBP2.38 billion, from GBP2.17 billion in 2012, in a move that could irk some of the shareholders who were tapped as part of the bank's GBP5.8 billion rights issue last year.
The investment bank's bonus pool made up GBP1.57 billion of that amount, representing a 12.9% increase, despite a 37% decline in the division's pretax profit which amounted to GBP2.52 billion last year.
"Our UK Retail and Corporate Banking businesses delivered good results, alongside the continued strong growth of Barclaycard. Within the Investment Bank, an impressive performance in Equities and in Investment Banking has helped to partially offset lower income from our Fixed Income, Currencies and Commodities business," Jenkins said in a statement.
"We have also started to make important progress in repositioning our African, European and Wealth businesses to improve returns. This performance has translated into income of GBP28.2 billion in the year, and adjusted profit before tax of GBP5.2 billion," he added.
Barclays maintained its dividend at 6.5 pence.
The bank said it is still committed to a 40-50% dividend payout ratio over time, but said it expects the ratio to be at 40% in 2014, which is at the lower range of guidance, as it continues to retain profits to boost its capital position.
"There may be some disappointment that cost targets have not been revised, despite weaker future income expectations in the investment bank owing to planned leverage exposure reduction," said Shore Capital analyst Gary Greenwood.
Numis said the results were slightly weaker than expected, mainly due to weaker-than-expected progress on costs. However, it said it was encouraged by the bank's progress on capital and leverage.
Deutsche Bank called the payout guidance disappointing, although it also welcomed the balance sheet improvement and said earnings were slightly better than the bank was expecting.
Barclays shares were Tuesday quoted at 264.00 pence, down 11.00 pence or 4.0%, the biggest decline on the FTSE 100.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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