Barclays Profit Misses Estimates as Bank Nears End of Overhaul

(Bloomberg) -- Barclays Plc posted fourth-quarter profit that missed analysts’ estimates on a charge for accelerating the costs of deferred bonuses, while the bank signaled progress in efforts to divest its Africa unit and sell off unwanted assets.

Fourth-quarter pretax profit was 330 million pounds ($410 million), compared with a loss of 2.1 billion pounds a year ago, the London-based lender said in a statement Thursday. Adjusted pretax profit of 284 million pounds fell short of the 646 million-pound average estimate of five analysts surveyed by Bloomberg News.

In his first year, Chief Executive Officer Jes Staley rebuffed calls to spin off or radically shrink the investment bank, instead opting to speed up business sales and sell down the firm’s African banking stake. The company said Thursday it will close the unit that houses its unwanted assets six months earlier than expected, and that it reached a separation agreement with management of the Africa division.

“Management are continuing to deliver ahead of expectations on the restructuring plan,” JPMorgan Chase & Co. analysts led by Raul Sinha wrote in a note to clients. “The next leg of upside is dependent on earnings and dividend growth.”

Shares of the British bank fell as much as 3.6 percent, after earlier climbing 3.9 percent to the highest level since Staley took the helm. The stock dropped 3 percent to 228.05 pence at 1:39 p.m. in London.

Capital Strength

The firm’s common equity Tier 1 ratio, a measure of capital strength, rose to 12.4 percent from 11.6 percent at the end of the third quarter. That surpassed analyst expectations for an 11.8 percent ratio, and Staley said the firm will gain another 0.75 percentage points from the Africa stake sale.

“We look forward to ending the restructuring of Barclays that’s been going on for years in a matter of months, and I think our shareholders will look forward to that,” Staley, 60, said in a Bloomberg Television interview. The firm has “resolved the issue of do we have the capital base to manage this bank going forward. I think we do and Africa is going to be an important part of that.”

The bank’s 2016 return on equity swung to 3.6 percent from negative 0.7 percent a year earlier, while its cost-income ratio improved to 76 percent from 84 percent. Still, the bank’s returns trail its cost of equity, which many analysts estimate at 10 percent.

Fixed-income revenue jumped 33 percent to 766 million pounds, while the five major U.S. investment banks collectively posted a 43 percent jump. Analysts at Sanford C. Bernstein and Deutsche Bank AG had expected income at the unit to climb by about 40 percent to 800 million pounds, while those at Credit Suisse Group AG forecast a 52 percent gain to 875 million pounds.

Equities trading revenue climbed 29 percent to 410 million pounds, a bigger jump than analysts expected.

Bond-market volatility has been spurred by the U.K.’s surprise vote to leave the European Union, the victory of Donald Trump in the U.S. election in November and divergent views on the direction and timing of central-bank interest rates.

To read more about Barclays’ post-Brexit relocation plans, click here

The charge on bonus deferrals was 395 million pounds. Banks typically recognize the cost of deferred bonuses only when the awards vest, not when they’re first awarded. Barclays said for 2016, it awarded more upfront bonuses and recognized the cost of awards sooner, leading to the charge.

Barclays will reintegrate the 25 billion pounds of risk-weighted assets it expects to have left in its non-core unit at the end of June, instead of a previous target to close the unit with 20 billion pounds at the end of the year. The division will generate about 1 billion pounds of pretax losses this year, the bank said.

“Good progress has been made in winding down the bad bank that has been holding the group back,” said Laith Khalaf, a bank analyst at Hargreaves Lansdown. “However, once the bad bank is consigned to the history books, there will be nothing for management to hide behind if the core business is not delivering.”

Conduct Costs

The bank said it’s awaiting regulatory approval on the separation agreement with Barclays Africa, which involves the U.K. lender paying 765 million pounds. The firm has sold a piece of its stake in the African lender, but is still the majority owner.

The bank’s misconduct charges fell in 2016, after seeing more than 20 billion pounds of profit erased by fines and settlements in the previous five years. That included 1.5 billion pounds for rigging currency markets in 2015 and 290 million pounds for rigging Libor in 2012.

Executives declined to provide an update on the looming battle with the U.S. Department of Justice over the sale of toxic mortgage-backed securities. The bank said in December it’s prepared to go to court after balking at paying the amount the government sought in negotiations. That sum was more than $5 billion, people with knowledge of those talks have said.

“We want to be treated fairly and in line with how the U.S. banks were treated, and we’ll leave it at that,” CEO Staley said on a call with analysts Thursday. In its annual report, the bank said it’s not “currently practicable to provide an estimate of the financial impact” of the DOJ’s civil complaint, but warned the costs could be “substantial.”

(Updates share price move in fifth paragraph.)

--With assistance from Richard Partington

To contact the reporter on this story: Stephen Morris in London at smorris39@bloomberg.net.

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Keith Campbell

©2017 Bloomberg L.P.