Profits Up 26% at Barclays

LONDON -- Barclays  (LSE: BARC  )   (NYSE: BCS  )  reported adjusted profit before tax of 7 billion pounds in 2012, up 26% from the year before. Of course, this adjustment ignores the additional 1.6 billion pounds the bank had to set aside to pay people inappropriately sold payment protection insurance (PPI) during the year, as well as 850 million pounds to pay back people sold dodgy interest rate hedging products.

But all that is in the past. Barclays has a new chairman in Sir David Walker; a new CEO in Antony Jenkins; and is also looking for a new finance director and general council. Investors can now look to the future of Barclays that Mr Jenkins laid out in a series of commitments to shareholders for 2015.

These include pulling back from risky lending and investment banking activities -- 1,800 members of the Corporate & Investment Bank will be shuffled out the door, along with 1,900 folks working in the bank's European retail operations. Future investment will focus on building the bank's presence in the U.S. and Africa and shoring up the U.K. operations.

A leopard and his spots
Jenkins is showing his retail banking background -- as well as a feel for investor sentiment -- by turning the bank away from the areas of operation that caused the worst headlines in the past year, which his comments clearly place at the feet of his investment banking predecessors:

There is no doubt that 2012 was a difficult year for Barclays and the entire banking sector. The behaviours which made headlines during the year stemmed from a period of 20 years in banking in which the sector became too aggressive, too focused on the short-term, and too disconnected from the needs of customers and clients, and wider society. Barclays was not immune from the impact of these trends, and we suffered reputational damage in 2012 as a consequence. Change is needed both in our industry and at Barclays.

Part of this change is a review of 75 business units (who knew there were so many ways to lend people money?) to determine which can provide a decent return without further threatening the company's reputation. That is assuming Barclays still has a reputation worth protecting, of course.

Separating the dividends from the chaff
Once all that is sorted, Jenkins is targeting a return on equity above 11.5% -- the bank's estimated cost of capital -- by 2015. Shareholders should be pleased by that target -- an investment that can't provide returns above its cost of capital is not creating value -- which is a nice improvement on this year's 7.8% (itself a solid improvement on last year's 6.6%) but a sight less optimistic than the bank's previous target of 13% by 2013.

When Jenkins and his new Barclays culture have had a chance to shake out all the troublemakers and reestablish the company as the go-to bank for savers, investors and businesses, he plans to focus on improving the dividend, looking to pay shareholders 30% of earnings eventually.

This year's 6.5 pence dividend was up 8% from a year ago, though still less than 20% of the 34.5 pence in adjusted earnings per share, but for now Barclays needs to retain every penny it can in order to build up its capital reserves in anticipation of stricter regulations in the coming years.

Barclays currently boasts a 2.2% yield so an eventual increase in the pay-out ratio would be nice... but if you're looking for a more attractive dividend payer today, why not check out this exclusive in-depth report?

The report describes an opportunity that offers a super 5.7% income, whose shares might be worth 850 pence versus around 700 pence now -- and has just been declared "The Motley Fool's Top Dividend Stock For 2013." Just click here to discover more.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2251136, ~/Articles/ArticleHandler.aspx, 8/21/2014 8:56:56 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement