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LONDON (Alliance News) - Barclays PLC Tuesday reported an increase in adjusted pretax profit last year, but the group's earnings on a statutory basis were dragged down by a provisions over alleged foreign exchange manipulation, insurance mis-sold to customers in the UK, and a technical change in the valuation of a portfolio of loans held in its non-core unit.
The FTSE 100 bank beat analyst forecasts by reporting a 12% increase in adjusted pretax profit, which amounted to GBP5.50 billion in 2014. This was supported by a 9% fall in adjusted operating expenses to GBP18.07 billion, supported by job cuts and other savings. Analysts had forecast a GBP5.33 billion adjusted pretax profit, according to Barclays.
On a statutory basis, which does not strip out the billions of pounds' worth of provisions set aside by the bank, pretax profit fell to GBP2.26 billion from GBP2.87 billion.
An additional GBP750 million provision for the ongoing investigations and litigation relating to the alleged foreign exchange rigging, as well as another GBP200 million charge to cover the costs of the mis-selling of payment protection insurance, meant Barclays fell into a statutory pretax loss of GBP1.47 billion in the fourth quarter, which was also hurt by a GBP935 million charge for an accounting revision of an education, social housing, and local authority portfolio that is mainly made up of "long-dated fixed-rate loans with strong credit quality".
Barclays shares were down 2.7% at 255.70 pence on Tuesday morning, the biggest blue-chip loser.
Led by Chief Executive Antony Jenkins, who replaced Bob Diamond in 2012, Barclays has restructured into four main operating divisions, as well as a unit tasked with running down non-core assets, with the aim of increasing returns and spreading the balance of the business more evenly from a previous reliance on the investment banking division.
Jenkins' time at the helm has not been without its difficulties, turning to shareholders in a GBP5.8 billion rights issue in the summer of 2013 to bolster the bank's capital and leverage positions, as well as battling against an investment bank that had become too big and costly under a strategy of expansion pursued by his predecessor.
While arguing that Barclays is in a better position now than at any time since the financial crisis of 2007-09, Jenkins said there is still work to be done to restructure, cut costs and improve its capital strength.
"Despite our real progress in 2014, we still have more work to do. We are determined to build on the momentum across the group, to continue to improve returns across our businesses, and to accelerate execution of our plans," Jenkins said.
The investment banking division proved to be a drag on Barclays' overall earnings in 2014, with adjusted pretax profit down by 32% to GBP1.38 billion and income down 12% to GBP7.59 billion. While credit card business Barclaycard and the personal and corporate banking division showed double-digit increases in adjusted pretax profit, the investment bank was joined by the bank's Africa division in reporting decreases in both income and profit.
According to Finance Director Tushar Morzaria, Barclays expects investment banking income for the first quarter of 2015 to be "well ahead" of that reported for the fourth quarter of 2014 and "approaching" that of the corresponding quarter of that year. The investment bank's income amounted to GBP1.67 billion the the fourth quarter of 2014 and GBP2.10 billion in the first quarter of last year.
Jenkins also said the bank has made progress on its capital strength, with its fully loaded common equity tier 1 ratio increasing to 10.3% from 9.1% at the start of the year, driven by reductions in risk-weighted assets and better capital levels. Also taking into account the sale of the bank's Spanish business at the start of January, the CET1 ratio would have increased to 10.5%. Barclays is targeting a CET1 ratio of above 11% in 2016.
Its leverage ratio, a broader measure of financial strength, increased to 3.7% from 3.5% at the end of September, moving closer to the bank's 4% target for 2016.
The dividend for the year was kept flat at 6.5 pence per share, but Barclays said it is continuing to target a 40-50% payout ratio.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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