John McFarlane holds dividend to speed up Barclays' recovery

Another £1bn hit for PPI but 'work has begun' on better returns for shareholders

Nick Goodway
Thursday 30 July 2015 01:38

Barclays’ new chairman has pledged to speed up the sale of unwanted assets, cut costs further and pay a more prudent dividend, three weeks after firing the bank’s chief executive, Antony Jenkins.

John McFarlane, who became executive chairman when Mr Jenkins left, said: “We need to accelerate growth in earnings, return on equity and capital generation. There is more that can be done to deliver better returns for shareholders, faster, and that work has begun.”

At the same time the finance director, Tushar Morzaria, dampened speculation that he might become chief executive. He said: “I’ve got a big job here as CFO and I am enjoying it enormously and that’s what I’ll continue to do.”

Mr McFarlane, 68, who oversaw an overhaul at the insurer Aviva two years ago, has made it clear he will take his time finding the right replacement for Mr Jenkins.

Barclays reported a better-than-expected 11 per cent rise in headline pre-tax profits for the first half but also took a further £1bn hit for mis-selling PPI and other customer compensation.

Mr McFarlane said the bank would maintain its dividend at 6.5p this year “as we focus on improving the returns of the business and accelerating the implementation of the strategy, while maintaining capital strength”. Some analysts had expected an increase to something like 7.2p a share.

Mr Morzaria said the bank was scrapping its old policy of paying out between 40 and 50 per cent of earnings in dividend, moving to a “more prudent payout”. But far from taking fright at this, investors pushed Barclays’ shares up 2 per cent, or 5p, to 284.6p. They have risen 13 per cent since Mr McFarlane’s coup.

While setting no new targets or announcing further job cuts on top of the 19,000 under Mr Jenkins, Mr McFarlane made it clear he wants to get Barclays’ cost-income ratio down from its current 68 per cent to nearer 50 per cent. He added: “We have not made a decision on headcount and have not confirmed any job cuts but the company will get smaller going forward.”

He said Barclays would continue to have its investment bank but made it clear this would be concentrated in the UK and US, highlighting the fact that its operations in the Middle East and Far East are not profitable.

He is also accelerating the sell-off of non-core assets, which stand at £57bn. The aim is to get that down to £20bn, rather than the £45bn previously set, by the end of 2017. At that point what was in effect the “bad bank” could be subsumed into the rest of the bank. But he was not going to tell people in advance which businesses were non-core. “That would simply cheapen the price of things if we want to get rid of them.”

Mr Morzaria said it was “disappointing” that the bank had had to increase its provisions for PPI mis-selling yet again. They cost an extra £600m in the first half, taking the total for Barclays over the past four years to £6bn.

After Barclays shut 100 branches during the first half Mr McFarlane said he was in no rush to continue closures at that pace. “I’m particularly hostile to closing the last branch in town,” he said. “But people are voting with their fingers nowadays and mobile access is now a multiple of branch visits.”

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