Far-out McFarlane

29 July 2015 By Dominic Elliott

The UK bank wants to cut up to 8 pct more in costs, while shedding legacy assets fast. Given Barclays’ new expense target is expressed as around 55 pct of the top line, more revenue would help. Both that and a helpful environment for deleveraging are far from assured.

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Barclays’ Executive Chairman John McFarlane on July 29 unveiled an ambitious new cost target as well as a plan to reduce legacy assets faster, as the UK bank reported adjusted second-quarter pre-tax profit up 12 percent to 1.85 billion pounds ($2.9 billion) versus the same period a year earlier.

McFarlane said he wanted to reduce the bank’s expenses as a proportion of revenue to the mid-50s percent, from a level of 64 percent in the first half of this year. Non-core risk-weighted assets will be reduced to 20 billion pounds in 2017, he said. They were at 57 billion pounds at the end of June.

The quarterly results, which beat analyst estimates for pre-tax profit of 1.75 billion pounds, included a fresh 850 million pound provision for UK customer compensation, principally for mis-sold insurance products.

The bank’s common equity Tier 1 ratio climbed 50 basis points to 11.1 percent from the end of March, while its leverage ratio rose 40 bps to 4.1 percent.

Second-quarter revenue in Barclays’ retail business was up 1 percent year-on-year to 2.2 billion pounds. At Barclaycard, the top line rose 13 percent to 1.2 billion pounds. In the bank’s Africa business it was 2 percent higher, while it was flat in investment banking.

Greater cost control improved second-quarter investment banking pre-tax profit by 35 percent from a year earlier, however. Fixed income trading was up 7 percent year-on-year, precisely offsetting a 2 percent drop in equities trading over the same period and an 11 percent fall in underwriting and advisory fees.

By 0805 GMT, shares in Barclays stood 2.3 percent higher from the previous day’s close at 286 pence.

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