Barclays Overhaul Nears End -- WSJ

Bank swings to profit, but shares decline; next step is to focus on technology, costs

By Max Colchester 

LONDON -- Barclays PLC Chief Executive Jes Staley on Thursday said a deep restructuring at the bank would soon finish, as the British lender swung to a GBP1.6 billion ($1.99 billion) annual net profit.

Last year, Mr. Staley launched a sweeping overhaul aimed at refocusing the bank on its U.K. and U.S. businesses. Barclays will shut the unit that holds its unwanted assets by June, ahead of schedule, and will also end a hiring freeze.

"We will have completed the restructuring of Barclays at that point," Mr. Staley said. The British bank will now focus on revamping its technology operations to reduce costs and improve customer service. Shares fell 4% in afternoon trading, as the bank missed analysts' cost targets and investors fretted about future profitability.

The U.S.-born executive, who spent three decades at J.P. Morgan & Chase Co., advocates a strategy that was drummed into him at his alma mater: being a bank with activities stretching from mortgages to merger advice pays dividends.

The decision to maintain Barclays's investment bank, at the expense of activities in Africa and Asia, helped push the lender to a profit last year, compared with a GBP394 million loss in 2015. Barclays said revenue was down 3% over the year to GBP21.5 billion, as the bank continued to exit businesses. A fall in fines over its conduct was partially offset by higher costs as the bank accelerated a payout of deferred bonuses.

Investment banks across the U.S. have benefited from market volatility caused by the election of U.S. President Donald Trump, the U.K.'s vote to the leave the European Union and the prospect of rising interest rates. Barclays benefited from this lift, with corporate and investment bank revenue up 6% to GBP10.5 billion, driven by bond trading and favorable exchange rates. "I would challenge the notion that only U.S. banks gained share in 2016," said Mr. Staley.

Mr. Staley added that the bank didn't have any plans to refocus more of the business on the U.S. to benefit from any potential loosening of financial regulations by the Trump administration. "We are managing the business under the assumption that Dodd Frank will stay," Mr. Staley said. "So we are not changing our strategy as we look forward."

Barclays said it was on track to deconsolidate its African business from its accounts. It has agreed on a GBP765 million separation agreement with its African business, which must now be approved by South African regulators. Once the "noncore" unit is closed, the amount of unwanted assets folded back into the bank will be GBP25 billion, slightly larger than what analysts had expected.

However, while the bank has made progress, analysts said not all hurdles had been cleared. The bank posted a return on equity -- a key measure of profitability -- at 3.6%, well below its targeted returns.

Dividend increases remain over the horizon after shareholder payouts were slashed to fund the accelerated turnaround at the bank. A series of litigation issues are also hanging over the bank. Barclays is being sued in the U.S. by the Justice Department for its alleged role in the sales of toxic mortgage-backed securities. It is also being probed by U.S. and U.K. authorities over how it wooed Middle Eastern investors to pump cash into the bank at the height of the financial crisis.

To try to reshape the bank's technology systems Mr. Staley has replaced a number of key executives. Barclays has brought in new technology, data and risk officers. He also poached Paul Compton from J.P. Morgan to act as Barclays's chief operating officer.

Write to Max Colchester at [e-mail]

(END) Dow Jones Newswires

February 24, 2017 02:48 ET (07:48 GMT)

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