Barclays Profits Triple to £3.2bn

Shares in Barclays were up 3.1% at £2.43 Thursday morning, among the best performers in the FTSE 100 index, but then fell back in the afternoon to finish 3% down

Derya Guzel 23 February, 2017 | 3:58PM
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Barclays has revealed its profits tripled in 2016 – up to £3.2 billion from £1.15 billion, although this was slightly below consensus forecasts. Full year income rose to £1.6 billion, versus a loss of £394 million in 2015, mainly supported by lower litigation and conduct cost.

The management team highlighted that the bank has felt no impact from Brexit headwinds so far

Shares in Barclays (BARC) were up 3.1% at £2.43 Thursday morning, among the best performers in the FTSE 100 index, but then fell back in the afternoon to finish 3% down in mid-afternoon trading.

While litigation and conduct cost declined this year, it is not all over for Barclays on the litigation cost side, as its residential mortgage-backed securities case with the U.S. Department of Justice has yet to be resolved, and this remains a downside risk to earnings.

Following the full-year results, we maintain our fair value estimate of £2 per share and our no-moat rating for the bank. On the operational side, the management team highlighted that the bank has felt no impact from Brexit headwinds so far, but we are starting to see the impact of inflation on consumer confidence in the U.K, hinting that some balance sheet slowdown is unavoidable in coming quarters.

The lender also specified the intended closure date of its Non-Core division, which has been the bank's focus for several years. 

Barclays also noted that it has agreed the terms of a transitional services agreement to be provided to its Africa unit as it sells down its majority stake in the subsidiary. "We are now just months away from completing the restructuring of Barclays, and I am more optimistic than ever for our prospects in 2017, and beyond," said James Staley, chief executive of Barclays.

On a group level, total income declined by 3%, mainly dragged by the decline in the noncore segment. In the core segments, Barclays UK posted a 2% year-over-year increase, while Barclays International saw a 9% increase in income, driven by favourable exchange-rate movements. On the cost side, litigation and conduct cost came in at £1.4 billion, versus GBP 4.4 billion in 2015, indicating a sharp 70% decline. In terms of operational cost, however, total cost saw a 6% increase to £14.5 billion, mainly on the back of a charge booked in the fourth quarter relating to compensation awards.

The overall total operating cost of £16.4 billion was 12% lower than last year, bringing the cost/income ratio to 76%, versus 84% in 2015. While we think further litigation and conduct cost remains a downside risk to the operating cost, on a core level, a 60% long-term cost/income ratio looks achievable.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Barclays PLC208.90 GBX-0.43Rating

About Author

Derya Guzel  is an Equity Analyst for Morningstar