The full extent of the challenges facing Barclays’ business model was laid bare on Tuesday when it announced plans to slash its dividend and sell its African subsidiary, stripping the bank back to its core UK and US markets.
Shares in Barclays fell more than 8 per cent, shedding £2.3bn of market value, after it announced a more than 50 per cent cut in its dividend for the next two years to conserve capital and absorb losses from toxic assets.
In the years since the financial crisis, a succession of chief executives have attempted to revamp the bank’s performance, only to be frustrated as it has faced a series of hefty fines for misconduct against a backdrop of rising regulatory pressure and falling revenues.
Jes Staley, who took charge as chief executive three months ago, said that the bank was “at the end of restructuring”. But he admitted: “We are acutely aware of shareholders being tired at the time it has taken us to restructure Barclays.”
By splitting the group into two divisions — UK retail banking and a corporate and investment bank — Mr Staley said that it was ready to comply with ringfencing rules forcing it to hive off its British and US arms into standalone entities.
Barclays would also dramatically scale back its presence in Africa, Mr Staley said, by selling down its 62.3 per cent stake in Barclays Africa Group, its Johannesburg-listed subsidiary, over two to three years to a level that allows it to be deconsolidated from the group.
John McFarlane, chairman, said that it was being forced to sell assets, such as its African subsidiary, because of punitive fines by authorities. “When conduct charges consume our profits, as they have for the past three years, we have no choice but to meet them by shrinking our franchise — selling or closing businesses — which reduces our capacity to support the real economy.”
Despite a heavy fourth-quarter loss dragging the bank into the red last year, Mr Staley said that once it put misconduct and restructuring costs behind it, the bank had “tremendous potential”.
However, investors are growing frustrated after Barclays failed to generate a cumulative profit over the past four years. “Look at your stock price, and what it is telling you is, no one is believing your ‘jam tomorrow’ capital story,” said Chintan Joshi, banking analyst at Nomura.
“You could say Barclays is having somewhat of an identity crisis,” said Mark Taylor, finance professor and dean of Warwick Business School. “To go through four CEOs . . . .in such a short period of time puts one in mind of Chelsea Football Club rather than a major financial institution.”
Return on equity at the African business fell to 8.7 per cent. But it was not Barclays’ worst performer last year, as return on equity at its investment bank was only 5.6 per cent. Credit card provider Barclaycard and the retail bank both comfortably beat its 10 per cent return target.
Mr Staley recently announced 1,200 more job cuts at the investment bank, but on Tuesday he rebuffed calls for the unit to be sold or cut back further. “Throughout the financial crisis those firms with diversified revenue streams were significantly stronger than those without — that is a fact,” he said.
Barclays also disclosed in its annual report that the US Department of Justice and Securities and Exchange Commission were investigating “certain of its hiring practices in Asia”. Several US banks and HSBC are already being probed for hiring relatives of state officials in countries such as China.
Barclays slid to a £1.9bn pre-tax loss in the fourth quarter after taking another £1.45bn hit for mis-selling payment protection insurance in the UK, and suffering a sharp drop in revenue at its investment bank.
The bank’s ratio of costs-to-income, a measure of efficiency, was flat at 81 per cent but Mr Staley said that he aimed to cut this below 60 per cent. Its core equity ratio rose to 11.4 per cent, below its new 2019 target of 12.7 to 13.2 per cent.
Adjusted pre-tax profits, stripping out a number of one-off items, were down 2 per cent at £5.4bn. Barclays’ bonus pool was down 10 per cent at £1.67bn.
Letter in response to this report;
Get alerts on Barclays PLC when a new story is published