Barclays Cautions on Outlook as Trading Beat Fuels Buyback

(Bloomberg) -- A strong end to the year for Barclays Plc traders helped the British lender deliver a share buyback and a return to dividends even as the bank said the outlook for 2021 remained uncertain.

The London-based firm’s securities division reported a better-than-expected 45% rise in markets revenue for the year, the biggest trading jump among major global investment banks. But the pandemic continued to slam the bank’s lending businesses, an impact Barclays said was likely to endure this year.

“We’ve been very, very persistent in our strategy,” said Chief Executive Officer Jes Staley, who has championed the corporate and investment bank as a counterweight for tough times for retail banking. “2020 demonstrated the value of our diversified banking model.”

London-listed shares in the firm were down 3% at 10 a.m, making it the second-worst performer on the FTSE 100 index, as analysts highlighted the lack of clarity on the coming year.

Barclays, the first of the major British banks to report earnings, signaled that Covid-19 restrictions on socializing continued to pummel the wider economy. Profit before tax at its domestic business fell more than half to 282 million pounds ($391 million) in the final three months of the year, while its U.S. credit card business saw pretax profit decline by about three quarters.

“The underlying emotion coming out of the pandemic was fear. Consumers have massively pulled back and focused on the strength of their personal balance sheets,” Staley said during a call with reporters.

U.K. debit and credit card spending was down 16.3% in January compared to last year, although Staley predicted that “strong economic recovery” should happen “sometime in the second half of this year,” with Britons splurging once lockdowns end.

The bank said overall headwinds in the U.K. business were expected to persist in the medium term and that its groupwide return on tangible equity was set to “meaningfully improve,” but did not give a target.

The outlook was “very light on detail,” according to analysts at Citigroup Inc. “The lack of context is unhelpful,” the analysts wrote in a note. “Comments on the outlook are unexciting,” said Edward Firth, an analyst at Keefe, Bruyette & Woods.

Staley said the bank was “prudent” in its preparations for defaults as governments start to wind down pandemic support measures, taking a 492 million-pound charge for loan losses in the quarter, which was less than expected, to bring the total for the year to 4.8 billion pounds.

It also booked about 370 million pounds for changes including “real estate rationalisation, branch optimisation and the discontinued use of certain software assets.” Staley said on Bloomberg TV that while the lender was rapidly moving toward more digital services, “you’re not going to see a major restructuring from the bank in terms of cutting costs.”

The bank is unlikely to make a decision on real estate soon, said Staley. “Right now, there’s no plan on our part to make a major real estate move because I just don’t think we really know what’s going to happen by the end of the year,” he said.

Limited Dividends

Barclays will pay investors 5 pence per share through a 1-pence dividend along with a buyback of as much as 700 million pounds that will begin within weeks.

The Bank of England set strict limits on dividends or buybacks after relaxing a ban intended to preserve capital during the pandemic. Payouts cannot exceed 25% of a lender’s profit over the past two years, after deducting previously paid dividends, or 0.2% of risk-weighted assets. Staley said at last year’s earnings that the bank was looking at the possibility of buybacks.

More detail from the bank’s fourth quarter:

• Corporate and investment bank revenue of 2.6 billion pounds; analysts forecast 2.5 billion pounds
• Adjusted pretax profit of 693 million pounds; forecast 386.4 million pounds
• Capital ratio on a Common Equity Tier 1 basis of 15.1%; forecast 14.4%
• “Well positioned to continue providing services in the EU” following Brexit

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