London - Barclays cut its profitability target for next year after third-quarter profit dropped 10 percent, missing analysts’ estimates, hurt by a 290 million-pound ($443 million) compensation charge to customers related to foreign exchange. The shares slumped.
Pretax profit, including restructuring costs, fell to 1.43 billion pounds from 1.59 billion pounds in the year-earlier period, the London-based bank said in a statement Thursday. That missed the 1.65 billion-pound average estimate of 14 analysts surveyed by Barclays. The bank cut the target for its “core” return on equity, a measure of profitability, to 11 percent from 12 percent for 2016 because of restructuring costs.
Chairman John McFarlane may struggle to boost profitability and restore investor confidence at Britain’s second-largest lender as surging legal costs erode earnings. The lender on Wednesday named former JPMorgan Chase & Co veteran Jes Staley chief executive officer, three months after McFarlane ousted Antony Jenkins over a slow pace of restructuring.
“We now have a forward agenda that has been discussed and agreed with Staley,” Chairman John McFarlane said in the statement. “Today’s results show another quarter of progress in our core businesses alongside the early effects of some of the changes that we are making.”
The shares dropped as much as 4 percent and were down 3.3 percent at 244.9 pence at 8:06 a.m. in London. They have gained about 0.5 percent this year after sliding 11 percent in 2014 under Jenkins.
Customer redress
The bank took the additional customer redress provision related to currency rates after an internal review. The total set aside for all UK customer compensation is now 1.3 billion pounds, up from 910 million pounds last year. It also took a 270 million-pound charge to settle residential mortgage-backed securities claims in the U.S.
Rising costs are undermining earnings. Return on average equity, a measure of the bank’s profitability, fell to 5.7 percent from 6.1 percent a year earlier. That remains below the cost of equity for UK banks, estimated to be about 9 percent by analysts. At the investment bank, the measure jumped to 5.2 percent from 3.1 percent last year, but fell from the 11.5 percent reached in the second-quarter.
Investment bank
In a memo to staff on Wednesday, Staley pledged to complete a “necessary transformation” of the investment bank, which has been plagued by surging compliance costs and a slump in profitability. Barclays increased the total cost forecast of its “transform” restructuring program, started under Jenkins, to 1 billion pounds.
The securities unit, led by Tom King, profit climbed to 317 million pounds from 284 million pounds a year earlier, while the slipping 7.7 percent to 251 million pounds at the Africa business. Barclaycard had a increase of 40 percent to 508 million pounds in that period, with the personal and corporate- banking division reporting an increase of 8 percent to 855 million pounds.
Excluding litigation and restructuring costs, operating expenses fell to 3.8 billion pounds in the third-quarter, down from 3.9 billion pounds a year earlier. That’s in line with JPMorgan Chase & Co’s bank analyst Raul Sinha’s forecast. The cost-income ratio, a measure of the lender’s efficiency, was 69 percent in the period compared with 68 percent a year earlier. That remains above the bank’s “mid-50s” target.
BLOOMBERG