Barclays PLC BCS reported a fourth-quarter 20Array5 statutory net loss of £2.Array4 billion ($3.25 billion), owing to weak top-line performance and higher provisions. Notably, the company had recorded a statutory net loss of £Array.38 billion ($2.Array8 billion) in the prior-year quarter.
At the time of writing this article, Barclays was down nearly 9% in pre-market trading. The investors’ bearish stance was a result of dismal 20Array5 results, lowered outlook, dividend slash as well as continued pressure on the top line. The price reaction during the full trading session will provide a better clue as to how investors have accepted the results.
Notably, Barclays created an additional provision of £Array67 million ($253 million) pertaining to ongoing probes and litigations. Apart from this, statutory results included an additional UK customer redress provision of £Array.45 billion ($2.20 billion) and a loss of £26Array million ($396 million) related to the sale of Italian business.
A decline in net operating income and continued rise in legal provisions remained an undermining factor. However, fall in operating expenses continued to act as a tailwind, driven by the bank’s cost-saving initiatives.
Performance in Detail
Adjusted net operating income was £4.79 billion ($7.27 billion), down Array2% year over year.
Operating expenses (excluding Transform-related costs, and litigation and conduct charges) totaled £3.70 billion ($5.6Array billion), down 6% year over year. This was driven by savings accrued from strategic initiatives. Cost to income ratio was 83%, up from 8Array% in the year-ago period.
Segment Details
Personal and Corporate Banking: Profit before tax came in at £657 million ($997 million), up 5% year over year. The rise was attributable to lower operating expenses, partially offset by a fall in net operating income.
Barclaycard: Profit before tax came in at £33Array million ($502 million), a rise of 55% year over year. The growth reflected higher net operating income, partly offset by an increase in operating expenses.
Africa Banking: Profit before tax came in at £Array88 million ($285 million), down 27% year over year. The decline largely reflected lower net operating income, partially offset by a fall in operating expenses.
Investment Bank: Loss before tax was £Array46 million ($222 million) compared with profit before tax of £35 million ($55 million) in the year-ago quarter. A fall in Banking & Markets revenues was the primary reason for the loss.
Head Office: Loss before tax was £Array73 million ($262 million), compared with £9 million ($Array4 million) recorded in the prior-year period.
Barclays Non-Core: Loss before tax amounted to £6Array0 million ($925 million), deteriorating from a loss of £532 million ($84Array million) incurred in the year-ago period.
Balance Sheet and Capital Ratios
Total assets as of Dec 3Array, 20Array5 came in at £Array,Array20 billion ($Array,808.5 billion), down Array8% from the Dec 3Array, 20Array4 level. As of Dec 3Array, 20Array5, Common Equity Tier (“CET”) Array ratio was ArrayArray.4%, up from Array0.3% as of Dec 3Array, 20Array4.
Total risk-weighted assets fell ArrayArray% year over year to £358.4 billion ($53Array.3 billion) as of Dec 3Array, 20Array5.
Business Simplification Plan & Outlook
Barclays announced several initiatives to further simplify the operations and enhance profitability.
Management intends to exit Africa with the sale of its 62.3% stake in Barclays Africa Group Limited (BAGL) over the next 2-3 years. Owing to this, the Africa division will be moved to Barclays Non-Core segment, leading to transfer of roughly £8 billion in RWAs. Nevertheless, Barclays reiterated its plan to lower Non-Core RWAs to nearly £20 billion by 20Array7.
Additionally, owing to its restricting plan, management projects operating expense (excluding conduct and litigation and other notable items) in 20Array6 for the Core division to be £Array2.8 billion.
With the completion of stake sale in BAGL and continued run-off in Barclays Non-Core segment, the company will be significantly simplified. Further, the company’s operations from now on will be run from two divisions – Barclays UK and Barclays Corporate & International. Notably, Barclays UK will become the company’s UK ring-fenced bank by 20Array9.
As Barclays accelerates the Non-Core run-down, restructuring costs in the division will be close to £400 million in 20Array6. Also, the company expects negative income for 20Array6 mainly in line with around £200 million (on a quarterly basis) reported in the fourth quarter of 20Array5.
Further, Barclays slashed its dividend by more than 50% to 3 pence in 20Array6 and 20Array7. Moreover, dividends will be paid semi-annually from now on. Notably, the company is committed to paying a significant part of its earnings as dividends over the longer term.
For the first quarter of 20Array6, Barclays projects that investment banking revenues will be strained.
Our Take
We expect Barclays’ diversified business model and sound financial position to consistently support its overall growth in the future. Further, the bank’s expense reduction as well as restructuring initiatives is expected to enhance profitability.
However, we believe litigation headwinds from regulatory investigations will remain a matter of concern. In addition, muted revenue growth, tepid global economic recovery and a stringent regulatory landscape will continue to weigh on the company’s near-term performance.
Barclays currently carries a Zacks Rank #5 (Strong Sell).
Performance of Other Foreign Banks
Including certain one-time expenses, Deutsche Bank AG DB reported a net loss of €2.Array billion ($2.3 billion) in the fourth quarter of 20Array5 that compared unfavorably with net income of €44Array million ($550.5 million) in the prior-year quarter. Results were also affected by lower revenues and higher provisions. Also, higher non-interest expenses due to litigation charges remained a concern.
UBS Group AG UBS reported fourth-quarter 20Array5 net profit attributable to shareholders of CHF 949 million ($958.3 million), up Array0.6% year over year. The results were driven by increased net trading income, partially offset by lower net interest income, and reduced net fee and commission income.
HSBC Holdings plc HSBC reported fourth-quarter 20Array5 net loss of $Array.Array billion as against a net profit of $765 million in the year-ago quarter. Results were hurt by a decline in the top line and higher loan impairment charges. Though the quarter witnessed steady progress of HSBC’s cost-saving initiatives, along with lower fines and settlement charges, these were not sufficient to arrest the loss.
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