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Barclays - Dividend set to double, looking fitter

Nicholas Hyett | 22 February 2018 | A A A
Barclays - Dividend set to double, looking fitter

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Barclays plc Ordinary 25p

Sell: 171.62 | Buy: 171.68 | Change -1.26 (-0.73%)
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Barclays' shares rose 5.5% in early trading after the bank announced it intends to more than double the dividend next year, from 3p this year to 6.5p in 2018.

Group wide net income, fell 2% to $18.7bn, despite lower credit impairments. However, lower operating expenses, a reduction in the UK bank levy and lower charge for past misdeeds meant profit before tax rose by 10% in 2017 to £3.5bn.

Changes to US tax rules and losses on the sales of Barclays Africa meant that the group reported an overall loss of £1.9bn for the year.

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The years Barclays has spent trying to get back in shape finally look set to pay dividends.

The Non-Core 'bad bank' is shut and the sale of Barclays Africa is largely complete. Having cost the bank £9.2bn, the PPI headache is also finally receding.

Barclays has emerged far slimmer - albeit still with aspirations to transatlantic grandeur.

Barclays UK contains the bits we all recognise as Barclays: a High Street bank, serving 22 million retail customers and almost a million smaller businesses with current accounts, loans, cards and mortgages, plus wealth management.

Barclays Corporate & International includes the business banking operations serving larger enterprises, a City and Wall Street investment bank, international card operations and payments.

The bank's certainly not gold medal-winning yet. A weak performance from the investment bank, stagnant income growth in the UK business and rising defaults in international credit cards all weighed on 2017 performance. But Barclays was always going to be more marathon than sprint.

There's still scope for a regulatory curveball. A cornucopia of finance regulators are crawling all over the bank at the moment, investigating past misdeeds. CEO Jes Staley is also under investigation for attempting to uncover the identity of a whistleblower.

While it's not out of the woods yet, it's difficult to argue that Barclays hasn't made significant progress. If it can deliver the 9%+ return on equity it's targeting by 2019 then next year's dividend hike, which would see the bank yield around 3% in 2018, might just be the first of several.

Barclays UK saw net income fall 2% to $7.4bn. However, this was largely driven by the non-recurrence of gains on the sale of Barclays' stake in Visa last year, with net-interest income actually improving slightly as loans to clients increased.

Lower regulatory fines and a fall in the number of bad loans reduced overall expenses meant that profit before tax in the division actually rose slightly to £1.7bn.

Barclays International, which includes the Corporate & Investment Bank (CIB) and international cards business, saw total income fall 4% to £14.4bn. However, an 18% increase in bad loans in the credit cards operation, as well as increased operating costs and higher regulatory fines, mean that profit before tax fell 22%.

The investment bank had a particularly tough time last year, with income down 15% to £4.5bn as market volatility remained low in the run up to Christmas. However, trading in the early part of this year has reportedly been strong.

The group finished the year with a CET1 ratio, a key measure of banking capitalisation, of 13.3%.

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