The Barclays chief executive, Jes Staley, has promised to return more money to shareholders in an effort to fend off the attentions of the activist investor Edward Bramson, as the bank reported flat profits for 2018.
Pre-tax profits of £3.5bn were held back by litigation and conduct charges of £2.2bn for the year, while the bank also took a £150m charge to cover economic uncertainty over Brexit.
Staley has come under pressure in the past year after Bramson amassed a 5.5% stake in the bank through his Sherborne investment vehicle and called for a major change of strategic direction. Bramson wants to cut back Barclays’ investment bank to free up capital for more profitable activities.
Bramson is also agitating for a seat on the Barclays board. Top executives at Barclays will meet Bramson in March to discuss his views on the bank’s strategy for the first time. However, the Barclays board on Thursday wrote a unanimous letter to shareholders saying that Bramson’s request should be denied to maintain a “cohesive” board.
The Barclays boss said the 6.5p dividend for 2018 represented “excellent progress but not sufficient”.
Staley said: “We will use the strong capital generation of the bank to return a greater proportion of earnings to shareholders by way of dividends and to supplement those dividends with additional returns, including share buybacks. I am optimistic for our prospects to do more in 2019 and beyond.”
Barclays declined to give further details on the timing and size of any share buybacks, although Staley suggested that the bank would be “prudent” while Brexit uncertainty persists.
The bank’s fixed income, currencies and commodities trading arm, a key part of the investment bank which Bramson wishes to shrink, earned £570m in the fourth quarter of the year. While that represented a 6% year-on-year fall, Barclays outperformed other European rivals, who saw double-digit declines in income amid market volatility.
Investors appeared to welcome the buyback plans. Shares in Barclays rose by 3.3% in morning trading on Thursday, the top riser on the FTSE 100, to reach 166p.
Gary Greenwood, a banking analyst at Shore Capital Markets, said: “It would appear that Barclays’ corporate and investment banking operations fared much better than its US rivals in the final quarter.”
The pressure of an “activist investor breathing down its neck and pressing for an alternative approach” would likely spur Barclays to deliver on its targets of increased profitability, Greenwood added.
Barclays group profit before tax excluding costs for fines was £5.7bn, an increase of 20% compared with 2017. Those litigation and conduct costs were inflated by a £400m provision for compensation for payment protection insurance (PPI) and a £1.4bn US fine in March for mortgage securities mis-selling. However, the bank hopes that those costs will not recur.
Barclays’ £150m Brexit provision – in line with similar amounts set aside by HSBC and Royal Bank of Scotland – was made to be “cautious and prudent”, Staley said on Bloomberg TV. Barclays has already gained a banking licence for an Irish subsidiary in preparation for Brexit, and has held more than 100 clinics with clients to help them get ready, amid continuing uncertainty.
Staley noted that the bank has so far seen few signs of a deterioration in credit quality, although customers were hoarding more cash in their accounts.
“People are clearly being increasingly cautious as we come to the final weeks – and hopefully not much longer – of uncertainty over Brexit,” he said.
Staley was paid a total of £3.4m in 2018, the same as in 2017, after the bank clawed back £500,000 of his 2016 bonus after he was censured and forced to pay a fine of £642,000 by the City regulator for trying to find out the identity of a whistleblower. The board also faced calls to fire Staley for the breach.
However, Staley still received a bonus of £1.1m for 2018.