Shares in high-street lender Barclays (BARC) dropped 3.2% to 174p as the bank admitted that reaching its 10% return target this year was more challenging than hoped due to continued low interest rates. Despite this it hoped to achieve a meaningful improvement in returns in 2020.

Investors were also shocked to hear that the UK regulators are investigating links between Barclays’ chief executive Jes Staley and disgraced financier Jeffrey Epstein.

The news overshadowed what was actually a fairly decent set of results for the year to 31 December with both the UK retail and the global investment bank contributing to an improvement in profits and a fall in their cost-to-income ratios.

UK MARKET STEADY

In the UK, lending to consumers grew by 4% to £151.9bn thanks to steady mortgage demand, while income was £4bn which was similar to 2018’s total. On the other hand credit card borrowing shrank by 4% to £14.7bn, leading to a 5% fall in income to £1.99bn.

Provisions for bad consumer loans climbed to £195m from £173m but provisions for credit card losses were down by around 20% from £590m to £472m as more customers kept up their payments.

Profits in the UK business were £2.6bn against £2.4bn, before taxes and costs for litigation and conduct, while costs decreased by 2% helping to drive the cost-to-income ratio down from 56% to 55%.

Provisions for PPI totalled £1.4bn during the year compared with just £400m in 2018 but the bank believes that, based on the level of complaints it dealt with in the third and fourth quarters, it doesn’t need to put aside any more cash.

INVESTMENT BANK GAINING GROUND

Barclays’ corporate and investment bank increased its income by 5% to £14.675bn while costs increased by 1% so the cost-to-income ratio fell to 64% from 69% the previous year.

The investment bank itself, which has come in for sustained criticism from activist investors like Edward Bramson, also delivered a 5% increase in income to £10.23bn led by the markets division which increased revenues by 7% as it continued to gain share from its US and European rivals.

Operating costs at the investment bank were 3% lower meaning that the cost-to income ratio dropped from 75% to 70%, which is higher than the retail business but still respectable, compared with Barclays’ rivals.

CHIEF EXEC UNDER FIRE

A further slight fly in the ointment for shareholders is the news that the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) have both opened investigations into chief executive Jes Staley’s connections to sex offender Jeffrey Epstein.

Staley has said that he has been ‘fully transparent’ in terms of his relationship with Epstein, both with the bank and the regulators, and that he has the board’s full support.

The relationship dated back to his previous role at JP Morgan’s private banking business in the 2000s and ended in 2015 according to Staley.

The chief executive was fined £642,000 in 2018 for trying to identify an employee who sent letters criticising a Barclays employee.

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Issue Date: 13 Feb 2020