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Barclays posts loss after taking hit from PPI claims and settlement over US fraud case

Last updated: 18:40 26 Apr 2018 AEST, First published: 16:52 26 Apr 2018 AEST

Barclays
“It remains our intention to pay a dividend for 2018 of 6.5p", says CEO Jes Staley

Barclays PLC (LON:BARC) moved into the red in the first quarter after taking a £2bn hit from litigation and conduct charges.

The bank reported an attributable loss of £764mln for the first three months of 2018, compared to a profit of £190mln the same period last year.

Litigation and conduct charges included a £1.4bn settlement with the US Department of Justice over the sale of mortgage-backed securities in the lead up to the 2008-09 financial crisis.

READ: Barclays agrees US$2bn settlement in US over mortgage-backed securities lawsuit

It also included an extra £400mln charge to cover claims for payment protection insurance (PPI) mis-selling.

Shares in the bank dipped 0.35% to 212p in morning trading. 

Excluding the charges, the lender rose to an attributable profit of £1.2bn from £209mln last year.

The lender’s capital position weakened as a result of the litigation and conduct charges with the common equity tier 1 ratio falling to 12.7% at March 31 from 13.3% at the end of 2017.

Barclays repeats intention to pay 2018 dividend

“The settlement with the US Department of Justice, together with additional charges relating to PPI, reduced our CET1 ratio by around 60bps to 12.7%, but given the earnings power of the Group, and our strong record in capital management, we are confident that we will get back to around 13% in good time,” said chief executive Jes Staley.

“It remains our intention to pay a dividend for 2018 of 6.5p, and we look forward to returning an increasing amount of capital to shareholders, both through the annual dividend, and via other means of return, such as buybacks, going forward.”

Barclays left its 2017 dividend unchanged at 3p in 2017 but in February said it would restore the payout in 2018 back to levels before it was cut two years ago.

READ: Barclays swings to 2017 loss but shares gain on plans to restore dividend

UK and international income falls

Total income declined by 8% to £5.4bn with the UK division posting a 3% drop to £1.8bn and the international arm down 8% to £3.8bn.

Barclays said lower income in the UK reflected a decline in personal banking due to the previous year’s £74mln valuation gain on its preference shares in Visa Inc and provisions for customer remediation in the wealth, entrepreneurs and business banking business.

International income was dragged lower by a poor performance in fixed income, currencies and commodities as well as a decline in corporate lending and banking fee income.

Group return on tangible equity fell 6.5% compared to growth of 1.8% last year, reflecting litigation and conduct charges. Without the charges, RoTE rose to 11.0% from 2.0%.

Risk weighted assets (RWA) in the UK rose to £72.5bn from £70.9bn following the implementation of the IFRS 9 accounting practices and asset transfers in preparation for UK ring fencing rules that require banks to separate retail banking from the rest of the business to protect consumers from another financial crash.  

International RWAs increased to £214.2bn from £210.3bn due to increased trading activity.

The cost to income ratio, which measures operating expenses against total income, rose to 99% from 62%.

ShoreCap remains bullish 

Shore Capital repeated a 'buy' rating and target price of 213p.

"While the shares have recovered a little in recent months, perhaps partly catalysed by the emergence of activist investors on the shareholder register, we believe that the stock continues to give too little credit for management’s ability to improve returns, a subject that is at the top of the agenda now that the capital position has been (largely) dealt with," said ShoreCap's Gary Greenwood. 

Activist investor ups stake in Barclays

Ahead of the results, activist investor Edward Bramson raised his stake in the bank to 5.41% from 5.16% through his investment vehicle Sherbourne.

Bramson is expected to be offered a meeting with Staley who usually meets with the lender's top investors after its annual general meeting.

The investor has reportedly been approaching Barclays shareholders in recent weeks to gain their backing to overhaul the investment bank in order to increase returns.

CEO whistleblowing saga

The results come a week after UK regulators proposed Staley pay an undisclosed fine for trying to unmask a whistleblower.

READ: Barclays CEO Jes Staley to be fined by UK regulators for whistleblowing incident

The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), which had been investigation Staley since last April, have alleged his actions represented a breach of individual conduct as he failed to act with due skill, care and diligence.

Barclays said it continues to have “unanimous confidence” in Staley and will recommend his re-election as a director at the company’s annual general meeting on May 1.  

"Recent conduct matters haven’t all been negative for Barclays, after all its CEO Jes Staley has been deemed fit and proper to run the business, despite his interference in a whistleblowing case," said Laith Khalaf, senior analyst at Hargreaves Lansdown.

"However 2019 promises to be a difficult year on the litigation front, with a criminal case pertaining to Barclays’ dealings with Qatari investors waiting to kick off, and a civil lawsuit pending thereafter."

In February, Britain’s Serious Fraud Office charged Barclays with unlawful financial assistance in relation to a US$3bn loan provided to Qatari investors as part of an emergency fundraising at the height of the financial crisis.

READ: Barclays charged by SFO over loan to Qatari investors in 2008 fundraising

Barclays teams up with PayPal

In a separate announcement, Barclays said it would be joining forces with digital payments firm PayPal to combine their services for customers.

READ: Barclays joins forces with PayPay amid threat from Amazon and Apple

Customers in the UK and US will be able to manage their PayPal accounts on the bank’s online and mobile phone platforms. Barclays products will also be available on PayPal.

Barclays is the first major UK bank to embark on a collaboration with a major US fintech firm rather than try to compete against the likes of Apple Pay.

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