Barclays yesterday unveiled the most disappointing performance so far from the big British banks, and even a pounds 306m buy-back of its shares failed to improve the mood of the market.
The impressive headline figure of more than pounds 2bn in pre-tax profits, largely thanks to a sharp drop in bad debt charges, masked a poor performance in the bank's underlying profits.
Martin Taylor, chief executive, insisted: "Barclays had a good year in 1995. All our major businesses are exhibiting greater confidence and greater momentum in an increasingly demanding environment."
But the share price weakened as the market worried about the combination of sluggish income growth and a rapid rise in costs. Barclays' operating profits declined by 5 per cent, compared with an average 16 per cent increase from Lloyd's, NatWest and Midland, which have already reported.
Barclays bought back 40 million of its shares, or 2.5 per cent of its capital. Mr Taylor said this was the preferred way of managing the bank's capital in current circumstances. Barclays bought back 25 million shares, worth pounds 180m, after its interims last August. "The desire to return capital to shareholders remains very strong at Barclays," Mr Taylor said shortly before the buy-back announcement.
In common with the other banks, Barclays is generating surplus capital at a strong rate. Its tier-one capital ratio was 7.7 per cent at the end of 1995, while the bank said yesterday between 6.5 and 7 per cent would be adequate for current conditions.
But it poured cold water on the prospect of using some of this cash for acquisitions. "We have the capital to do it, but we are more centered on getting value out of existing businesses than we are in buying in an overheated banking acquisition market," said Andrew Buxton, Barclays' chairman.
Martin Taylor said the group has no obvious strategic weaknesses. "All the pieces of the jigsaw are in place," he said, committing the bank to continuing its aggressive investment programme. In 1996 investment expenditure will continue at least at last year's level of pounds 430m, which was already up one-third on 1994.
Driven partly by heavy investments but also by large restructuring charges in problem areas such as France, overall costs increased sharply last year by 9 per cent. Excluding investment, restructuring and disposal expenses, underlying costs increased 5 per cent to pounds 4.2bn.
Mike Trippit, an analyst at SBC Warburg, said: "They are trying but not succeeding in getting a grip on this. With income growth sluggish, the operating trend does not look attractive."
Mr Taylor said Barclays would continue to distinguish itself from the other High Street clearers by focusing on quality rather than quantity in earnings "We are aiming for a stable business that shows consistent profits rather than the volatility of the past."
He said the shrinkage of Barclays' loan book "looks almost finished now", adding: "We are trying hard not to push the volume in ways that would threaten the quality we have achieved."
Job cuts will continue, but at nothing like the rate of previous years, the bank said. Mr Buxton said the claim by the banking union, Bifu, of 10,000 losses "may be a reasonable estimate of the trend over the next five years".
Barclays' staff union, Unifi, which claims to represent two-thirds of employees, is to decide this week whether to hold a strike ballot over pay and conditions. It denounced a basic pay rise of 2.75 per cent. But Barclays yesterday said that, on average, staff will be getting an effective pay rise of at least 4.5 per cent, when incremental awards are included, as well as an average pounds 1,200 one-off payment from the 8 per cent staff profit share award.
Barclays shares closed down 6p at 765 yesterday.