Barclays Plc - 1st Quarter Results

Performance Highlights

 

Resilient performance with Group return on tangible equity of 9.6%1

 

·

Barclays has continued to implement its strategy in pursuit of improved returns for shareholders

·

Financial targets remain unchanged. Barclays is focused on achieving the 2019 and 2020 Group return on tangible equity (RoTE) targets of >9% and >10% respectively

·

The income environment in the quarter was challenging and if this were to persist for the remainder of the year Barclays expects to reduce costs below the Group cost guidance of £13.6-13.9bn for 2019

 

 

Returns1

 

Group RoTE targets of >9% in 2019 and >10% in 2020

·

Profit before tax of £1.5bn (Q118: £1.7bn) and earnings per share (EPS) of 6.3p (Q118: 7.1p)

·

Group RoTE of 9.6% (Q118: 11.0%)

-

Barclays UK RoTE of 16.4% (Q118: 15.7%)

-

Barclays International RoTE of 10.6% (Q118: 13.6%), with the Corporate and Investment Bank (CIB) RoTE of 9.5% (Q118: 13.2%), in the challenging income environment, and Consumer, Cards and Payments of 15.4% (Q118: 15.7%)

Cost efficiency

 

Group cost guidance of £13.6-13.9bn1 in 2019

Cost: income ratio of <60% over time

·

Group operating expenses1 decreased 3% to £3.3bn, resulting in a cost: income ratio of 62% (Q118: 63%) and positive cost: income jaws for the Group

·

2019 Group cost guidance remains unchanged at £13.6-13.9bn. However, should the challenging income environment experienced in Q119 continue, management expect to reduce 2019 costs below £13.6bn

Capital and dividends

 

At end-state CET1 ratio target of c.13%

·

Common equity tier 1 (CET1) ratio of 13.0% (December 2018: 13.2%), as 39bps of organic capital generation from profits was offset by a £7.8bn increase in Risk Weighted Assets (RWAs) primarily due to seasonality, 14bps from dividends paid and foreseen, and 8bps relating to employee share awards

·

Maintain our capital returns policy, incorporating a progressive ordinary dividend, supplemented by share buybacks as and when appropriate

 

·

Barclays Group profit before tax was £1.5bn (Q118: loss of £0.2bn). Excluding litigation and conduct, Group profit before tax was £1.5bn (Q118: £1.7bn). Income was down 2% and operating expenses were reduced by 3%. The cost: income ratio was 62% (Q118: 63%). Credit impairment charges increased to £0.4bn (Q118: £0.3bn) and were £0.2bn lower than in Q418, which included a £150m specific charge for the impact of the anticipated economic uncertainty in the UK

·

Barclays UK profit before tax increased to £0.6bn (Q118: £0.2bn). Excluding litigation and conduct, profit before tax increased 1% to £0.6bn reflecting a 5% reduction in credit impairment charges due to a reduced risk appetite and continued benign economic environment. Operating expenses decreased 1% reflecting improved operating efficiency, partially offset by continued investment in digital. Income declined 1%, as continuing margin pressures were partially offset by sustainable growth in mortgages and deposits

·

Barclays International profit before tax decreased to £1.1bn (Q118: £1.4bn), reflecting challenging markets for the CIB.Income was down 6%, as growth in Consumer, Cards and Payments was more than offset by the reduction in CIB, reflecting reduced client activity, lower volatility and a smaller banking fee pool across the industry2. Operating expenses reduced by 4% as variable compensation accruals were reduced, reflecting income performance in the CIB. Credit impairment charges increased by £0.2bn, due to the non-recurrence of a favourable US macroeconomic forecast update in Q118

·

Attributable profit was £1.0bn (Q118: loss of £0.8bn). This reflected the non-recurrence of Q118 litigation and conduct charges of £2.0bn, principally relating to the Residential Mortgage Backed Securities settlement and Payment Protection Insurance (PPI). Basic earnings per share was 6.3p (Q118: 7.1p) excluding litigation and conduct

·

Tangible net asset value (TNAV) per share increased 4p in Q119 to 266p as 6.3p of EPS, excluding litigation and conduct, was partially offset by reserve movements, including the impact of changes in FX, the pension re-measurement and employee share awards

 

1

Excluding litigation and conduct, with returns targets based on a Barclays Group CET1 ratio of c.13%.

2

Source: Dealogic.

 

James E Staley, Group Chief Executive Officer, said:

 

"Today we have announced that Barclays earned just over £1bn of attributable profit in the first quarter of 2019, or 6.1 pence per share.

 

Group RoTE was 9.2% in spite of a mixed environment for global banks. TNAV increased 4p to 266p, which has now grown in each of the last four quarters.

 

Group profits before tax were £1.5bn, with positive jaws driven by a 3% reduction in costs, excluding litigation and conduct, versus a 2% reduction in revenues.

 

Barclays UK produced a strong RoTE of 16.4%, excluding litigation and conduct - an improvement on an increased equity base compared to Q1 of 2018, which included a 12% increase in Business Banking income.

 

Barclays International also delivered a double digit RoTE of 10.6%, excluding litigation and conduct, though this was down from a very profitable comparable period last year.

 

Within Barclays International, our Consumer Cards & Payments business had another good quarter, with improved performance in our US franchise in particular, driving a RoTE of 15.4%.

 

Our Corporate and Investment Bank achieved a RoTE of 9.5%, compared to 13.2% in Q1 of 2018. From a revenue perspective, we had a weak quarter in investment banking fees.

 

Our Markets business outperformed US peer average for the sixth consecutive quarter, and like Q1 last year, generated a double-digit return on tangible equity.

 

Our total operating expenses in the first quarter were £3.3bn. Three years ago, we took a charge of just under £400m to allow us to better align variable compensation accruals with the firm's revenues.

 

What you see in the first quarter is Barclays using this discretion around variable compensation to manage our costs and deliver expected profitability.

 

A 9.6% RoTE, excluding litigation and conduct, in the first quarter of this year is a good step towards our objective of delivering a RoTE of greater than 9% in 2019 and greater than 10% in 2020."

 

James E Staley, Group Chief Executive Officer

 

Barclays Group results

 

for the three months ended

31.03.19

31.03.18

 

 

£m

£m

% Change

Total income

5,252

5,358

(2)

Credit impairment charges and other provisions

(448)

(288)

(56)

Net operating income

4,804

5,070

(5)

Operating expenses

(3,257)

(3,364)

3

Litigation and conduct

(61)

(1,961)

97

Total operating expenses

(3,318)

(5,325)

38

Other net (expenses)/ income

(3)

19

 

Profit/(loss) before tax

1,483

(236)

 

Tax charge1

(248)

(304)

18

Profit/(loss) after tax

1,235

(540)

 

Non-controlling interests

(17)

(53)

68

Other equity instrument holders1

(180)

(171)

(5)

Attributable profit/(loss)

1,038

(764)

 

 

 

 

 

Performance measures

 

 

 

Return on average tangible shareholders' equity1

9.2%

(6.5%)

 

Average tangible shareholders' equity (£bn)

45.2

44.2

 

Cost: income ratio

63%

99%

 

Loan loss rate (bps)

54

36

 

Basic earnings/(loss) per share1

6.1p

(4.2p)

 

  

 

 

 

Performance measures excluding litigation and conduct2

 

 

 

Profit before tax

1,544

1,725

(10)

Attributable profit

1,084

1,166

(7)

Return on average tangible shareholders' equity1

9.6%

11.0%

 

Cost: income ratio

62%

63%

 

Basic earnings per share1

6.3p

7.1p

 

 

 

 

 

 

As at 31.03.19

As at 31.12.18

 As at 31.03.18

Balance sheet and capital management3

£bn

£bn

£bn

Tangible net asset value per share

266p

262p

251p

Common equity tier 1 ratio

13.0%

13.2%

12.7%

Common equity tier 1 capital

41.4

41.1

40.2

Risk weighted assets

319.7

311.9

317.9

UK leverage ratio

4.9%

5.1%

4.8%

UK leverage exposure

1,065

999

1,031

Average UK leverage ratio

4.6%

4.5%

4.6%

Average UK leverage exposure

1,106

1,110

1,090

 

 

 

 

Funding and liquidity

 

 

 

Group liquidity pool (£bn)

232

227

207

Liquidity coverage ratio

160%

169%

147%

Loan: deposit ratio

80%

83%

84%

 

 

 

 

 

1

From 2019, due to an IAS 12 update, the tax relief on payments in relation to Additional Tier 1 instruments has been recognised in the tax charge of the income statement, whereas it was previously recorded in reserves. The Q119 tax credit was £48m (Q118: £46m). This change does not impact earnings per share or return on average tangible shareholders' equity.

2

Refer to pages 29 to 35 for further information and calculations of performance measures excluding litigation and conduct.

3

Capital, RWAs and leverage measures are calculated applying the transitional arrangements of the Capital Requirements Regulation (CRR). This includes IFRS 9 transitional arrangements.

4

The fully loaded CET1 ratio was 12.6%, with £40.3bn of CET1 capital and £319.6bn of RWAs, calculated without applying the transitional arrangements of the CRR.

 

Group Finance Director's Review

 

The Group return on tangible equity, excluding litigation and conduct, was 9.6% with earnings per share of 6.3p. Income decreased 2% and operating expenses were reduced by 3% resulting in positive jaws and an improved cost: income ratio of 62%.

 

Group performance

 

·

Profit before tax was £1,483m (Q118: loss of £236m). Excluding litigation and conduct, profit before tax was £1,544m (Q118: £1,725m), reflecting the challenging income environment for the CIB, and an increase in impairment due to the non-recurrence of a favourable US macroeconomic forecast update in Q118. The 6% appreciation of average USD against GBP positively impacted profits

·

Total income decreased 2% to £5,252m. Barclays UK income decreased 1% reflecting margin pressures partially offset by continued balance sheet growth. Barclays International income decreased 6%, as the impact of the challenging income environment for the CIB were partially offset by 6% growth in Consumer Cards and Payments

·

Credit impairment charges increased to £448m (Q118: £288m) primarily driven by the non-recurrence of a favourable US macroeconomic forecast update in Q118. There were no significant changes in the macroeconomic variables used in impairment modelling during the quarter. Delinquencies in unsecured lending remained stable, reflecting the continued prudent management of credit risk. The Barclays Group loan loss rate was 54bps (Q118: 36bps)

·

Operating expenses of £3,257m reduced by 3% driven by lower variable compensation accruals in CIB, reflecting reduced income, whilst investment to grow the business and improve future operating efficiency continued. The cost: income ratio, excluding litigation and conduct, reduced to 62% (Q118: 63%)

·

The effective tax rate was 16.7%, which reflected a change in accounting standards from 2019 requiring tax relief on payments made under Additional Tier 1 (AT1) instruments, which in prior periods was recognised in retained earnings but taken into account for RoTE and EPS calculations, to be recognised in the income statement

·

Attributable profit was £1,038m (Q118: loss of £764m). Excluding litigation and conduct, attributable profit was £1,084m (Q118: £1,166m), generating a RoTE of 9.6% (Q118: 11.0%) and EPS of 6.3p (Q118: 7.1p)

·

TNAV per share increased 4p in Q119 to 266p as 6.3p of EPS, excluding litigation and conduct, was partially offset by reserve movements, including the impact of changes in FX, the pension re-measurement and employee share awards

 

Barclays UK

 

·

RoTE excluding litigation and conduct was 16.4% (Q118: 15.7%) reflecting the continuing strength of the Barclays UK business

·

Total income decreased 1% to £1,777m as lower lending margins were partially offset by continuing mortgage and deposit growth

 

-

Personal Banking income decreased 1% to £964m, reflecting continuing mortgage margin pressure, partially offset by mortgage and deposit balance growth and improved liability margins

 

-

Barclaycard Consumer UK income decreased 7% to £490m reflecting the continued reduced risk appetite in light of economic uncertainty

 

-

Business Banking income increased 12% to £323m driven by strong deposit growth and the non-recurrence of a client remediation provision in Q118

 

-

Net interest margin decreased 2bps in Q119 to 3.18% driven by continuing pressure on mortgage margins and the mix effect from the focus on growing secured over unsecured lending

·

Credit impairment charges decreased 5% to £191m reflecting the continued reduced credit risk appetite and benign UK economic environment as reflected in the stable 30 and 90 day arrears rates in UK cards of 1.9% (Q118: 2.0%) and 0.9% (Q118: 0.9%) respectively

·

Operating expenses, excluding litigation and conduct, decreased 1% to £999m as continued investment to grow the business, including digitisation, was offset by the non-recurrence of Q118 ring-fencing set-up costs and cost efficiencies. The cost: income ratio, excluding litigation and conduct, was 56% (Q118: 56%)

·

RWAs increased to £76.6bn (December 2018: £75.2bn) including the recognition of property leases following IFRS 16 implementation and change in mix of the liquidity pool

 

Barclays International

 

·

Profit before tax, excluding litigation and conduct, decreased 20% to £1,137m resulting in a RoTE of 10.6% (Q118: 13.6%), reflecting reduced returns in the CIB of 9.5% (Q118: 13.2%) and Consumer, Cards and Payments of 15.4% (Q118: 15.7%)

·

The 6% appreciation of average USD against GBP positively impacted profits and income, and adversely impacted credit impairment charges and operating expenses

·

Total income decreased 6% to £3,570m

 

-

CIB income of £2,505m decreased 11% reflecting reduced client activity, lower volatility and a smaller banking fee pool across the industry1. Markets income decreased 6% to £1,369m, Banking fees income decreased 17% to £569m, and Corporate income decreased 13% to £567m

 

 

-

Within Markets, FICC income increased 4% to £902m driven by a strong performance in Rates. Equities income decreased 21% to £467m driven by equity derivatives which was impacted by reduced client activity and subdued volumes, compared to a strong Q118 that saw higher levels of volatility

 

 

-

Banking fees income decreased 17% to £569m reflecting the reduced fee pool across the industry and a strong Q118. Barclays share of the global fee pool has increased since FY181

 

 

-

Within Corporate, Corporate lending income reduced to £152m (Q118: £240m). Excluding mark-to-market movements on loan hedges, Corporate lending income was stable at c.£200m. Transaction banking income was stable at £415m (Q118: £414m)

 

-

Consumer, Cards and Payments income increased 6% to £1,065m reflecting growth in US cards partnership portfolio business and FX

·

Credit impairment charges increased to £245m (Q118: £93m)

 

-

CIB credit impairment charges increased to £52m (Q118: release of £159m) primarily due to the non-recurrence of a favourable US macroeconomic forecast update in Q118

 

-

Consumer, Cards and Payments credit impairment charges decreased 23% reflecting less pronounced seasonal effects. Credit metrics were stable, with US cards 30 and 90 day arrears of 2.6% (Q118: 2.6%) and 1.4% (Q118: 1.4%) respectively

·

Total operating expenses decreased 4% to £2,225m as variable compensation accruals were reduced in response to the income performance in the quarter

·

RWAs increased to £216.1bn (December 2018: £210.7bn), driven by increased CIB seasonal activity

 

Head Office

 

·

Loss before tax, excluding litigation and conduct, was £181m (Q118: £284m). Including litigation and conduct charges of £39m (Q118: £1,535m), loss before tax was £220m (Q118: £1,819m)

·

Total income was an expense of £95m (Q118: £238m) which included legacy capital instrument funding costs and hedge accounting expenses partially offset by the recognition of dividends on Barclays stake in Absa Group Limited. The reduction on prior year reflects lower net expenses from treasury operations

·

Operating expenses, excluding litigation and conduct, decreased to £52m (Q118: £59m)

·

RWAs increased to £27.0bn (December 2018: £26.0bn) driven by recognition of property leases following IFRS 16 implementation

 

1

Source: Dealogic.

 

Group capital and leverage

 

·

The CET1 ratio remained at the end-state target of c.13% having decreased to 13.0% in the quarter (December 2018: 13.2%), primarily due to an increase in RWAs of £7.8bn partially offset by a £0.3bn increase in CET1 capital

 

-

The increase in RWAs was principally due to seasonality in the CIB and the implementation of IFRS 16 within Barclays UK and Head Office

 

-

CET1 capital increased by £0.3bn to £41.4bn as underlying profit generation of £1.2bn, was partially offset by £0.5bn for dividends paid and foreseen and £0.3bn from share awards

·

The average UK leverage ratio increased to 4.6% (December 2018: 4.5%) primarily driven by the issuance of AT1 securities, and was flat year-on-year. The average UK leverage exposure was stable at £1,106bn (December 2018: £1,110bn). The UK leverage ratio decreased to 4.9% (December 2018: 5.1%) primarily driven by a seasonal increase in balances, partially offset by an increase in capital, including the issuance of AT1 securities

 

Group funding and liquidity

 

·

The liquidity pool increased to £232bn (December 2018: £227bn) reflecting the Group's prudent liquidity management approach, given the prevailing macroeconomic uncertainty, while continuing to support seasonal business activity. The liquidity coverage ratio (LCR) remained well above the 100% regulatory requirement at 160% (December 2018: 169%), equivalent to a surplus of £84bn (December 2018: £90bn). The LCR declined in the quarter reflecting the seasonal increase in business activity. The Group also continued to maintain surpluses to its internal liquidity requirements

·

Wholesale funding outstanding, excluding repurchase agreements, was £158bn (December 2018: £154bn). The Group issued £2.2bn equivalent of minimum requirement for own funds and eligible liabilities (MREL) instruments year-to-date from Barclays PLC (the Parent company). The Group is well advanced in its MREL issuance plans, with a Barclays PLC MREL ratio of 27.7% as at 31 March 2019 relative to an estimated requirement including requisite buffers of 29.9% by 1 January 2022

 

Other matters

 

·

The remaining PPI provision as at 31 March 2019 was £0.6bn (December 2018: £0.9bn) to cover claims through to the deadline of 29 August 2019

·

Following regulatory approval, Barclays intends to redeem its £3bn 14% Reserve Capital Instruments to be effected on 15 June 2019, which will result in an ongoing earnings benefit

 

Outlook

 

·

The Group continues to target 2019 and 2020 RoTE of >9% and >10% respectively. The Group cost guidance for 2019 remains £13.6-13.9bn. However, should the challenging income environment experienced in Q119 persist, management expect to reduce 2019 costs below £13.6bn