Barclays Crashes Most Since 2012 On Dividend Cut, Abysmal Results

Don’t look now, but Barclays just joined the chorus of European banks reporting horrific results.

Shares plunged by double-digits on Tuesday after the bank said it swung to a £1.9 billion pre-tax loss in Q4 and moved to cut the dividend and shed its African subsidiary.

The payout will be cut by more than half this year and next in an effort to shore up the bank’s capital. For all of 2015, the red ink summed to £394 million, markedly worse than 2014. Adjusted pre-tax profit (which, as FT put it, strips out "lots" of one-offs) was £5.4 billion, a miss on consensus of £5.8 billion.

The bank will look to exit a 62% stake in Barclays Africa going forward and new CEO Jes Staley plans to exit the continent altogether. For the foreseeable future, Barclays will focus on its businesses in the US and the UK. The dividend will be cut to 3 pence per share from 6.5p in 2015.

"While we believe that the cut in dividend will be taken negatively initially, it will help to allay fears of capital weakness," analysts at Haitong Research wrote on Tuesday.

“In the few months since Staley's appointment, Barclays has made sweeping cuts across its investment bank and exited several businesses including in Asia, aiming to trim costs, reduce risk and shore up its balance sheet,” Reuters notes“However, legacy issues continue to hurt the bank, with 4.01 billion pounds of provisions made against an array of regulatory missteps, compared with 2.36 billion a year earlier.”

"Staley, who joined the bank three months ago, is in the midst of reorganizing the bank around two lines: UK retail banking and its corporate and investment bank," FT reminds us. "By splitting into two main divisions, he says Barclays would prepare for new ringfencing regulations forcing it to hive off its UK retail banking unit and its US activities into standalone entities."

Revenues were up slightly in 2015 and the ratio of costs to income was 81%. Staley plans to reduce that figure to 60% or less. Previously, Barclays was looking at a target in the "mid-50s."

Barclays Africa Group Limited will will be sold down until it can be deconsolidated, a move Staley says will beef up the bank's capital ratio by 1%. As FT goes on to say "Barclays remains one of the most weakly capitalised banks in Europe, on a par with Deutsche Bank and Credit Suisse."

The decision to exit Africa was "a difficult one to make," Staley says, but it "presents specific challenges to Barclays as owners." A third of all Barclays staff operate in Africa.

But while Barclays may be abandoning the Africa business, it won't be exiting investment banking, as some commentators have suggested. "There are some who have recommended we would be wise to exit this business entirely — I strongly disagree," Staley said on Tuesday. "That's shortsighted," he added, before admitting that the business "does not currently generate returns above our cost of equity."

"Shortsighted" investors have sent the stock down nearly 40% over the past year alone.

Barclays Tier 1 ratio was 11.4% by the end of last year, up from 10.3% a year earlier. Staley says the bank will start paying out a "significant" portion of its profits in 2018. So stick around.  

In any event, this is a train wreck. There's also £18 billion in O&G exposure on the books and the bank said the SEC and the DoJ are launching "an investigation into certain hiring practices in Asia.”

Although Staley tried to keep it upbeat, he clearly has no idea how this is going to turn out. Here, for instance, is guidance: "[We're going to] achieve attractive returns for shareholders."

Fair enough, but "shareholders" aren't happy. We close with what Nomura's Chintan Joshi told Staley on the call: “Look at your stock price, and what it is telling you is no one is believing your ‘jam tomorrow’ capital story."