Barclays Plc - Half-year Report

Performance Highlights

 

Resilient performance with Group return on tangible equity of 9.4%1 and an increased half year dividend of 3.0p per share

 

·

Barclays reported a Group return on tangible equity (RoTE) of 9.4% for the first half of 2019 and continues to target RoTE of >9% and >10% for 2019 and 2020 respectively1

·

The income environment in the first half was challenging and as a result Barclays is focused on net cost reductions in the second half and expects to reduce costs for 2019 to below the £13.6bn1 low end of the Group's previous cost guidance

·

Barclays will pay a half year dividend of 3.0p (H118: 2.5p) and is reiterating its capital returns policy

 

Returns1

 

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

·

Profit before tax of £3.1bn (H118: £3.7bn) and earnings per share (EPS) of 12.6p (H118: 14.9p)

·

Group RoTE of 9.4% (H118: 11.6%)

-

Barclays UK RoTE of 15.1% (H118: 17.3%)

-

Barclays International RoTE of 10.7% (H118: 12.9%), with the Corporate and Investment Bank (CIB) RoTE of 9.4% (H118: 11.1%) and Consumer, Cards and Payments of 16.7% (H118: 22.7%)

Cost efficiency

 

Group cost guidance of below £13.6bn1 in 2019

Cost: income ratio of <60% over time

·

Group operating expenses1 increased 1% to £6.8bn, resulting in a cost: income ratio of 63% (H118: 61%), reflecting continued investment in the business offset by lower compensation accruals and cost efficiencies

·

Cost control is a priority and, given the challenging income environment experienced in the first half, management expects to reduce 2019 costs below £13.6bn1

Capital and dividends

 

CET1 ratio target of c.13%

·

Common equity tier 1 (CET1) ratio of 13.4% (December 2018: 13.2%) was above the Group's target ratio of c.13%. The reported CET1 ratio increased 40bps in the second quarter

·

Reiterating capital returns policy, incorporating a progressive ordinary dividend, supplemented by share buybacks as and when appropriate. Dividends will continue to be paid semi-annually, with the half year dividend expected to represent, under normal circumstances, around one-third of the total dividend for the year

·

Half year dividend of 3.0p per share to be paid on 23 September 2019 (H118: 2.5p)

 

·

Barclays Group profit before tax was £3.0bn (H118: £1.7bn) and excluding litigation and conduct, was £3.1bn (H118: £3.7bn). The cost: income ratio was 63% (H118: 61%), with income down 1%, driven mainly by margin pressure in Barclays UK and lower income in Barclays International, while costs increased 1%, reflecting continued investment in the business. Credit impairment charges increased to £0.9bn (H118: £0.6bn) reflecting the non-recurrence of favourable US macroeconomic forecast updates and single name recoveries in H118, while delinquencies in unsecured lending remained stable

·

Barclays UK profit before tax was £1.1bn (H118: £0.8bn). Excluding litigation and conduct, profit before tax was £1.1bn (H118: £1.2bn). Income declined 2%, as continuing margin pressure was partially offset by continued growth in mortgages and deposits. Operating expenses increased 2% as digital investment was partially offset by cost efficiency savings

·

Barclays International profit before tax was £2.3bn (H118: £2.7bn). Income was down 1% driven by a reduction in CIB, reflecting reduced client activity, lower volatility and a smaller Banking fee pool across the industry2, offset by growth in Consumer, Cards and Payments. Operating expenses increased 1% as continued investment in the business was partially offset by reduced variable compensation accruals, reflecting performance in the CIB. Credit impairment charges increased from £0.2bn to £0.5bn, due to the non-recurrence of favourable US macroeconomic forecast updates and single name recoveries in H118

·

Attributable profit was £2.1bn (H118: £0.6bn). This reflected the non-recurrence of Q118 litigation and conduct charges of £2.0bn, principally relating to the Residential Mortgage Backed Securities settlement (RMBS) and Payment Protection Insurance (PPI). Excluding litigation and conduct, attributable profit was £2.2bn (H118: £2.6bn), generating basic earnings per share of 12.6p (H118: 14.9p)

·

Tangible net asset value (TNAV) per share was 275p (December 2018: 262p) as 12.6p of EPS, excluding litigation and conduct, and positive net reserve movements, were partially offset by payment of the remaining full year 2018 dividend of 4p in the second quarter

 

 

1

Excluding litigation and conduct, with returns targets based on a Barclays Group CET1 ratio of c.13%. Group cost guidance is based on a rate of 1.27 (USD/GBP) and subject to foreign currency movements.

2

Data Source: Dealogic for the period covering 1 January to 30 June 2019

 

Barclays Group results

 

for the half year ended

30.06.19

30.06.18

 

 

£m

£m

% Change

Total income

10,790

10,934

(1)

Credit impairment charges and other provisions

(928)

(571)

(63)

Net operating income

9,862

10,363

(5)

Operating expenses

(6,758)

(6,674)

(1)

Litigation and conduct

(114)

(2,042)

94

Total operating expenses

(6,872)

(8,716)

21

Other net income

24

12

 

Profit before tax

3,014

1,659

82

Tax charge1

(545)

(644)

15

Profit after tax

2,469

1,015

 

Non-controlling interests

(34)

(108)

69

Other equity instrument holders

(363)

(346)

(5)

Attributable profit

2,072

561

 

 

 

 

 

Performance measures

 

 

 

Return on average tangible shareholders' equity

9.1%

2.6%

 

Average tangible shareholders' equity (£bn)

 45.7

 43.8

 

Cost: income ratio

64%

80%

 

Loan loss rate (bps)

54

35

 

Basic earnings per share

12.1p

3.3p

 

Dividend per share

3.0p

2.5p

 

  

 

 

 

Performance measures excluding litigation and conduct2

 

 

 

Profit before tax

3,128

3,701

(15)

Attributable profit

2,158

2,550

(15)

Return on average tangible shareholders' equity

9.4%

11.6%

 

Cost: income ratio

63%

61%

 

Basic earnings per share

12.6p

14.9p

 

 

 

 

 

 

As at 30.06.19

As at 31.12.18

As at 30.06.18

Balance sheet and capital management3

£bn

£bn

£bn

Tangible net asset value per share

275p

262p

259p

Common equity tier 1 ratio

13.4%

13.2%

13.0%

Common equity tier 1 capital

42.9

41.1

41.4

Risk weighted assets

319.1

311.9

319.3

Average UK leverage ratio

4.7%

4.5%

4.6%

UK leverage ratio

5.1%

5.1%

4.9%

 

 

 

 

Funding and liquidity

 

 

 

Group liquidity pool (£bn)

238

227

214

Liquidity coverage ratio

156%

169%

154%

Loan: deposit ratio

82%

83%

83%

 

1

From 2019, due to an IAS 12 update, the tax relief on payments in relation to Additional Tier 1 (AT1) instruments has been recognised in the tax charge of the income statement, whereas it was previously recorded in retained earnings. Comparatives have been restated, reducing the tax charge for H118 by £93m. This change does not impact earnings per share or return on average tangible shareholders' equity. Further detail can be found in Note 1, Basis of preparation on pages 55 to 56.

2

Refer to pages 84 to 93 for further information and calculations of performance measures excluding litigation and conduct

3

Capital, Risk Weighted Assets (RWAs) and leverage measures are calculated applying the transitional arrangements of the Capital Requirements Regulation (CRR) as amended by the Capital Requirements Regulation II (CRR II) applicable as at the reporting date. This includes IFRS 9 transitional arrangements. For more information on the implementation of CRR II see page 40.

4

The fully loaded CET1 ratio was 13.1%, with £41.7bn of CET1 capital and £319.0bn of RWAs, calculated without applying the transitional arrangements of the CRR as amended by CRR II applicable as at the reporting date.

 

Group Chief Executive Officer's Review

 

"This was another resilient quarter of performance.

 

For the second quarter in succession Barclays generated an attributable profit of over £1 billion, and delivered EPS of 12.6p for the first half of 2019.

 

Our Group Return on Tangible Equity of 9.3% for the quarter is a further step towards meeting our 2019 RoTE target of greater than 9%.

 

Our reported CET1 ratio increased by 40 basis points in Q2 to 13.4%, demonstrating the strong capital generation capacity of the business.

 

Barclays UK continued to build its mortgage and deposit balances, with stable credit metrics. This has partially offset the reduction in net interest margin from increased levels of customer refinancing, and lower interest earnings from UK cards balances. Digital engagement with our UK customers is at an all time high, with just under 8 million customers now digitally active on the Barclays App.

 

The Corporate & Investment Bank produced a 9.3% return in the quarter, and we saw market outperformance in Banking fees and in Fixed income, Currencies and Credit.

 

Consumer, Cards & Payments continues to progress, producing an RoTE of 18% in the quarter and 16.7%for the half year.

 

Management focus on cost control remains a priority, and we expect to reduce expenses to below £13.6 billion for 2019.

 

This all puts us in a position to continue to increase the return of capital to shareholders by declaring a half year dividend of 3 pence. The half year dividend is around a third of what we expect to pay in total in a given year under normal circumstances. This increase in ordinary dividend reflects the confidence that the Board and management have in the sustainable earnings generation of our business.

 

Barclays' progressive capital returns policy, and intention to supplement the ordinary dividend with additional cash returns, including share buybacks when appropriate, remains unchanged."

 

James E Staley, Group Chief Executive Officer