- Title: Barclays reports surprise capital boost as legal costs loom
- Date: 23rd February 2017
- Summary: LONDON, ENGLAND, UNITED KINGDOM (FILE) (REUTERS) VARIOUS OF EXTERIOR OF BARCLAYS HEADQUARTERS
- Embargoed: 9th March 2017 14:10
- Keywords: staley brexit capital profits uk banks barclays
- Location: LONDON, ENGLAND, UK
- City: LONDON, ENGLAND, UK
- Country: United Kingdom
- Topics: Company News Markets,Economic Events
- Reuters ID: LVA00164QQ0ST
- Aspect Ratio: 16:9
- Story Text: Barclays reported a surprise increase in its capital reserves on Thursday (February 23) 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 percent, 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 United States and Britain.
Analysts had only expected the bank's capital ratio to climb to 11.8 percent and the unexpected boost helped push Barclays shares up 3.4 percent to 243 pence, more than double their June 24 low after Britain's vote to leave the European Union.
Chief Executive Jes Staley told reporters on a conference call that the extra capital had taken the question of the bank needing to raise capital 'off the table."
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.
Staley also made a clear commitment to London as Barclays main centre of operations.
"We're looking at what our options are to operate across Europe if we lose the single market because of Brexit. But I don't think any of those plans reflect a dramatic departure from London. We may some people in Dublin, we may add some people across Europe, but our core operations at centre will continue to be London. I continue to believe that London will be the financial centre for Europe, even without the single market, and we're committed to the UK," he said.
The bank is facing an array of challenges including litigation costs in the United States, rising provisions for late credit card repayments and the need to complete the sale of its African division.
It also now faces a suit from the U.S. Department of Justice on civil charges of fraud in the sale of mortgage-backed securities in the run-up to the 2008-09 financial crisis. So far, Barclays is alone among major banks in choosing to contest a case where rivals have settled.
Even so, Staley said he was against any major loosening of the U.S.'s regulatory regime for banking. Earlier this month, U.S. President Donald Trump ordered reviews of major banking rules such as Dodd-Frank that were put in place after the 2008 financial crisis, drawing fire from Democrats who said his order lacked substance and squarely aligned him with Wall Street bankers.
"Banks need to acknowledge that there were mistakes made and the banks clearly played a part in the financial crisis that created economic calamity around the world. I think re-regulating the banks was absolutely necessary. I don't think a change in Dodd-Frank is merited," he said.
The capital boost came from rising profits from trading amid volatile markets and the faster than expected disposal of unwanted assets in 2016 included its Asian private bank, its Southern European cards business and Italian retail business.
"In terms of its non-core unit, the bank is actually pledging to cut that six months ahead of schedule. So the shares were up two to three per cent in early trade, which caps off a pretty good performance if you look back over the last year, when the shares were up 49 per cent," said Wilson King Investment Management, Head Of Research, Richard Hunter.
Barclays reported an adjusted pretax profit for 2016 of 3.2 billion pounds ($4 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 percent in line with U.S. rivals that have seen similar boosts thanks to a backdrop of volatile markets.
The lender also posted a hefty 35 percent increase in credit provisions to 2.2 billion pounds as more customers, particularly in the United States, fell behind on payments.
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