Barclays cash signal points to sober expectations

Its troublesome investment bank shows signs of stability; handy for the tough year ahead.

The absence of mishaps

If a big bank’s main win over the year was the absence of mishaps, investors will take it. For a while at least. Barclays shares had—briefly—their best day for almost two years after a rise of as much as 4.8%. Investors even looked through an £150m Brexit-related provision that helped cap net profit below forecast to £3.5bn, flat vs. 2017. Brexit hits are at least no longer surprising. A whopping £2.6bn total impact from litigation, conduct and PPI charges also matches previous flags. So, the main surprise was a positive one. Furthermore, it was from Barclays perennial problem child, the U.S.-facing investment bank. With rivals’ trading operations Stateside upended by sharp volatility last quarter, concerns that Barclays faced the same fate were heightened. As it turned out, pre-tax profits at Barclays International, which houses the IB, were largely square with expectations averaging £3.95bn. Net trading income rose 12% to £4.45bn, despite a 10.5% drop in Q4. Quarterly fees and commissions helped by largely holding steady, whilst equities jumped 25% against flat bonds, commodities and FX (FICC). Aside from the exceptional-looking stocks win, solid fees and comms. hint at the holy grail for markets businesses, where services help to stabilize core volatility.

Brexit creeps

But like RBS and Lloyds earlier this week, Barclays still found it necessary to kindle hopes of more generous reimbursements to offset disappointing returns. Though International drove group return on tangible equity with a 4.3 percentage-point rise to 8.7%, UK retail operations retreated to 16.7% from 17.8%, in line with a 3% profit slide. Brexit’s chilling effect is implicated. Declines in personal banking and Barclaycard join charges for souring card loans that more than doubled in Q4 to £250m. With the key capital ratio down 10 basis points at 13.2%, targeting 13%, the implication is that Barclays sees room—as well as need—to open the cash spigots a bit more. As the stock retreats to a rise of 1.8% at last look, the group appears to have read shareholders correctly.

For starters

Aside from Brexit, another tacit motivation for increased pay-outs is the presence of activist Edward Bramson, who holds a 5% stake. His main demand is that Barclays retrench from capital-intensive investment banking. Quarterly and annual results provide some vindication of CEO Jes Staley’s conviction that the IB is an indispensable part of the whole. Yet while a profitable UK retail bank and progress in righting the cost structure show he’s probably done all he can to brace for Brexit, the investment bank still seems random and exposed. Either way, Barclays’ solid quarter needs to be just a starting point given the year ahead.