Barclays has cut its dividend in half. Bonuses are running at three times the level of distributions to shareholders. And the investment bank, even after a round of pruning, still isn’t earning returns greater than its cost of capital. A couple of years ago, under hapless former chief executive Antony Jenkins, Barclays would have been hammered for turning in such statistics. Under his successor, Jes Staley, however, all is apparently bright. He says Barclays is “just months” away from completing its restructuring and that 2016 was a year of “strong progress”.
Hold the champagne. Yes, pre-tax profits nearly tripled to £3.2bn as misconduct charges fell way, which is undoubtedly encouraging for shareholders. It is also true that the UK retail bank is purring nicely and that Barclaycard is as reliable as ever. And the cut in the dividend can be deemed old news: it was signalled a year ago as a prudent way to clear the decks and enable “non-core” assets to be shed faster.
But, come on, Staley’s biggest call as the incoming boss was to retain the ambition to go head-to-head with the big Wall Street investment banks. He is not yet close to justifying that decision. On the published figure, return on tangible equity in the unit was just 6.1% last year. Staley can theoretically spirit the figure to 8% by excluding the cost of closing an office and adjusting for an accounting rejig on bonuses. But that still doesn’t get returns to the target of 10%-plus. The refrains that bonuses still have to flow to stay “competitive” and that “I like the talent in that business” are wearingly familiar and weak.
Staley’s other big call has been to refuse a settlement with the US Department of Justice over distributing mortgage junk between 2005 and 2007. Barclays thinks the department’s claims are “disconnected from the facts” and that it has a duty to defend itself “against unreasonable allegations and demands”. Top marks for fighting your corner; applause will be entirely merited if shareholders end up better off by a billion dollars or two. But let’s see it happen first.
In the meantime, the note of triumphalism that accompanied Thursday’s results jarred. To be fair to Staley, he’s talking the right language of rapid digital transformation and Barclays feels a more confidently managed operation than in the Jenkins years. But this remains a work in progress. Before Staley takes too much comfort from the 50% improvement in the share price since last summer, he should take a step back. The shares were 260p on the day Jenkins was fired in 2015 and are 229p now.
RSA, best in class? …
On the other hand, Stephen Hester, once of Royal Bank of Scotland, can claim the turnaround programme at insurer RSA has been well and truly achieved. Two years ago, when Zurich Insurance showed up waving a 550p-a-share offer, RSA looked to be a sitting duck at 400p. It was an unloved sprawl of international operations and Hester’s self-help decluttering programme was too young to be trusted.
City fund managers would have flogged RSA, the folk behind More Than, in an instant. Thankfully, they didn’t get the chance. Zurich, facing problems on the home front, got cold feet and walked away. Since then, RSA’s recovery has run consistently ahead of schedule.
The latest evidence is the 25% increase in operating profits to £665m, which included record underwriting profits. The share price seems to have left the (non) bid price behind. It is 605p and investors have received 15.5p of dividends on the way.
It remains to be seen how much further RSA can travel as it attempts to switch gears from recovery mode to what Hester calls “best in class” levels. In theory, there could be more speedy gains. RSA’s combined ratio – claims versus income from premiums – is 94%. A ratio of 92%, which doesn’t seem a huge stretch, would imply a one-third improvement in earnings.
Whether or not it materialises, RSA is already a textbook example of why the City should be less dazzled by bids for supposedly clapped-out companies. The idea that salvation for RSA implied submission to the big insurers’ fashion for consolidation couldn’t have been more wrong.
A dangerous tariff
Are standard tariffs at British Gas a raging rip-off or are they are “actually decent value”, as Iain Conn, boss of parent Centrica, maintains? We’ll await regulator Ofgem’s next views on interplay between fixed and standard tariffs. But Conn is probably correct to think that the government, with a green paper on consumer markets in the offing, won’t have the appetite to fix energy prices. If business rates can damage a minister’s career, who would want direct responsibility for setting every household’s energy bill?
This article was sourced from http://newskylineland.com