Investment view: Barclays would be a buy if it worked for shareholders

Our view: Hold

Share price: 236.95 p (2.9 p)

Just how much money did Barclays make last year? On Friday it reported statutory pre-tax profit of £5.9bn, but "adjusted" pre-tax profit came in at £5.6bn.

Why the adjusted number? It takes out some accounting quirks that work in Barclays' favour and is regarded in the City as thebetter number.

However, Pirc, the shareholder group, argues that the real number should be closer to £3bn because it should include deferred bonuses from prior years which are payable for 2011. This amounts to three times the 2011 dividend of £730m.

Pirc argues that this means the bonuses for last year were calculated on an inflated number and should be lower. And every £1 paid out in bonuses is £1 lost to shareholders.

Barclays hotly disputes this. Its numbers are in compliance with international accounting standards and it says that if it followed Pirc's argument then other items from previous years could be brought forward which would count as gains.

The debate does show just how difficult it is to make sense of the numbers of any financial institution, and the impact of financial quirks.

Barclays does at least look to be in reasonable shape as far as financial strength goes, with a core tier one capital ratio of 11 per cent. But maintaining this buffer means Barclays is carrying a lot more "dead" money. So its notional cost of equity on what it can actually use is higher, 11.5 per cent this year. Its return on that equity – which its chief executive Bob Diamond wants to hit 13 per cent – came in at only 5.8 per cent.

In part the number has been hit by writedowns, particularly at the troubled Spanish operations (£500m), while Barclays Capital, the investment banking arm, had a very bad fourth quarter with revenues coming in £400m below forecasts.

Even considering the former as a one-off (which could be said to be optimistic) and the latter as an aberration (more likely, given the optimistic tone management took about the bank's start to 2012) Mr Diamond will be rechristened Dumbledore if he gets even close in 2012.

There were plus points. That adjusted profit number was only 2 per cent lower than last year's, although revenues were 8 per cent lower. What really helped was a 33 per cent fall in bad debt.

Notable highlights were the performance of Barclaycard (profits up 53 per cent at £1.2bn) and Barclays Africa, up 26 per cent to £908m. Africa has six of the world's 10 fastest growing economies, and Barclays is deeply entrenched, more than almost any other Western bank. The continent has flattered to deceive on numerous occasions in the past, but it does seem that there are grounds to be optimistic about certain parts of it.

In valuation terms, Barclays does not look expensive. On Investec's cautious numbers it trades at just 0.61 times the forecast 2012 net asset value and on just 6.3 times forecast earnings. The dividend yield is steadily creeping up, with a forecast 3.2 per cent for this year starting to look respectable.

Barclays cut its bonus pool by 26 per cent across the group and 35 per cent at Barclays Capital. But the proportion of revenues it used to pay them was up (at the investment bank). There are various ways you can look at the bonus figures, but even the Association of British Insurers, which is more conservative than Pirc, says Barclays is not doing enough here. The cuts in bonuses look deep but are only in line with the falls in revenues.

It is hard to compare Barclays with the other British banks: the two state-supported operations are either barely profitable or loss making while Barclays' African business has a way to go before it can match the businesses the more highly rated HSBC and Standard Chartered have in Asia.

On the financials, Barclays is worth holding. But to make the shares worth buying I'd want to see more signs that it is squarely putting shareholders first and bonuses second.

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