Barclays Warns It’s Very Unlikely to Hit Profitability Goal

(Bloomberg) -- Barclays Plc might struggle to reach its profitability target for the year and could cut discretionary awards as the coronavirus pandemic disrupts its business, joining a string of global lenders.

“It’s going to be a tough year for earnings,” Tushar Morzaria, finance director, said on Tuesday at the Morgan Stanley European Financials Conference, held virtually this year.

Barclays might delay some of its investments and cut bonuses, according to Morzaria. “In a year like this, we have those levers available” and “obviously variable compensation is one,” he said.

His comments came as two of Singapore’s major banks delivered fresh warnings on the potential effect of the virus outbreak on their earnings. Oversea-Chinese Banking Corp. expects revenue growth to be “relatively muted” this year as the outbreak slams economies. United Overseas Bank Ltd. said its bad-loan costs may be greater than it initially estimated.

Last month, Barclays stuck to its goal of boosting return on tangible equity, a key measure of profitability, above 10% for 2020. The lender said at the time in its annual earnings that it would be a challenging target to achieve, but with the virus spreading, that goal appears even harder to reach.

“The world has moved on since the full year,” Morzaria said. “Where we are now, that looks very, very unlikely.”

The outbreak comes at a difficult time for Barclays, whose Chief Executive Officer Jes Staley is being scrutinized by British regulators over his account of his relationship with controversial financier Jeffrey Epstein. The company’s board has backed Staley, who is facing his second probe by U.K. regulators since joining the bank in 2015.

Significant Headwinds

Building the provisioning for the virus’s disruptions to the U.K. economy will be a “much more significant headwind,” the finance director said. Low interest rates and the U.K. economy, which “probably starts shrinking,” pose additional challenges, he said.

The lender’s shares fell as much as 8.5% in London morning trading.

The U.K. banking system is better prepared to face shocks given the measures put in place for Brexit, according to Morzaria. “We have been in a defensive posture for a little bit of time now”, he said. “Not only in terms of risk, but also in terms of liquidity and capital.”

Boris Johnson’s government announced on Tuesday a massive rescue package of loans and grants for businesses in an attempt to stop the pandemic wrecking the U.K. economy.

Barclays is also counting on a diversified business model, the finance director said, hinting at a strong spell for the corporate and investment bank. “In the first quarter of the year, it’s generally a good environment for trading and sales businesses, more market volatility, very high volume of activity,” he said. Looking back, the finance director said that fixed income and equities trading desks did “relatively very well” but there is “room to improve.”

The Morgan Stanley conference is being held online only, and there are no physical attendees at the event which usually takes place in London because of the coronavirus.

Earlier Tuesday, Lloyds Banking Group Plc Chief Executive Officer Antonio Horta-Osorio said the bank will revisit parts of his plan to transform the business and delay some investments. Banco Santander SA said at the same conference that the impacts of the coronavirus could cut its earnings by 5% this year.

©2020 Bloomberg L.P.