Barclays reported a surprise increase in its capital reserves yesterday thanks to the speedy sale of unwanted assets, helping the British bank put money aside as it braces for legal battles and worsening market conditions.
Reporting results for 2016, the bank said its core capital ratio, a key measure of financial strength watched closely by central banks, rose to 12.4 per cent, meaning the lender no longer needed to consider raising more money.
While Barclays profits were lower than expected, they nearly trebled from a year earlier as the bank emerges from an overhaul in which it is shedding unwanted assets, including most of its African business, to focus on the US and Britain.
Analysts had only expected the bank’s capital ratio to climb to 11.8 per cent and the unexpected boost helped push Barclays shares up 3.4 per cent to 243 pence, more than double their June 24 low after Britain’s vote to leave the EU.
“It has taken off the table a question we got quite often last year: will you need to raise capital?... That should lay that question to rest,” chief executive Jes Staley told reporters on a conference call.
Capital has been a key concern for investors since the Bank of England said last November that Barclays had fallen short of one of its targets in a stress test scenario but stopped short of requiring the bank to submit a new plan to boost reserves.
“We are well positioned to absorb headwinds over the next few years. Certain legacy conduct issues remain and we intend to make further progress on them,” Staley said.
The bank is facing an array of challenges including litigation costs in the US, rising provisions for late credit card repayments and the need to complete the sale of its African division.
The capital boost came from rising profits from trading amid volatile markets and the faster-than-expected disposal of unwanted assets in 2016 including its Asian private bank, its southern European cards business and Italian retail business.
Barclays said it would now close its so-called non-core division in June, six months ahead of schedule.
“The key in the results is the progress on capital... The final cost of litigation does remain an uncertainty but the higher ratio gives the bank more flexibility and is welcome,” Fiona Swaffield, analyst at Royal Bank of Canada, wrote in a research note.
Barclays reported an adjusted pretax profit for 2016 of £3.2 billion, compared with £1.14 billion a year earlier. That was below the average forecast of £3.97 billion from analysts’ estimates compiled by the bank.
The closure of the bank’s non-core unit and improving investment bank performance, however, show the bank is turning the corner on its major restructuring at a timely moment given the host of challenges ahead.
The lender’s investment banking division reported strong results from active fixed income trading, with credit trading up 44 per cent in line with US rivals that have seen similar boosts thanks to a backdrop of volatile markets.