It’s been a busy week for bank results, and we’ve seen some very different responses from the market.
On Monday, HSBC received a tepid reception, with its shares down 1% on the day. On Tuesday, Standard Chartered got a serious thumbs down, tumbling 7%. However yesterday, Lloyds was cheered to the rafters, ending the day up 14%. Today, it’s back to the negative, with Royal Bank of Scotland diving 8% in morning trading.
That just leaves us with Barclays (LSE: BARC) as the last of the big five FTSE 100 banks to report. Will Barclays, whose results are slated for Tuesday, delight like Lloyds or disappoint like RBS?
Expectations
The table below shows some of Barclays’ key numbers at nine months, and analyst consensus forecasts for Q4 and the full year. Numbers are on Barclays’ ‘adjusted’ basis, as opposed to statutory.
|
|
Actual 9 months to 30 September |
Forecast Q4 |
Forecast FY |
|
Total income net of insurance claims (£m) |
19,090 |
6,068 |
25,158 |
|
Impairment charges (£m) |
1,468 |
556 |
2,025 |
|
Net operating income (£m) |
17,622 |
5,511 |
23,133 |
|
Total operating expenses (£m) |
12,465 |
4,579 |
17,044 |
|
Profit before tax (£m) core (£m) non-core (£m) |
5,156 6,005 (849) |
947 1,282 (335) |
6,103 7,287 (1,184) |
|
Earnings per share (p) |
17.9 |
1.5 |
19.4 |
|
Dividend per share (p) |
3.0 |
3.5 |
6.5 |
Total income net of insurance claims for the full year is forecast to be 2.2% lower than 2014, with a stronger Q4 improving the 3.1% decline seen at the nine-month stage.
Despite the reduced income, lower forecast impairment charges (6.6% down on 2014) and lower total operating expenses (5.7% down) are expected to feed through to a 10.9% rise in profit before tax for the year, with earnings per share (EPS) moving 12.1% higher.
The analyst consensus (and management guidance) is that Barclays will pay the same 3.5p final dividend and 6.5p total payout as last year. If the EPS and dividend forecasts are on the mark, the payout ratio would fall from 37.6% to 33.5%.
Kitchen-sinking?
Veteran JP Morgan banker James (‘Jes’) Staley took over as Barclays’ chief executive on 1 December. New bosses often like to do a bit of ‘kitchen-sinking’ on their arrival, so I’m wondering if we could see some bigger impairment charges than consensus in Q4, and maybe more litigation costs booked than analysts have pencilled-in.
However, I don’t think the market would punish Barclays for a bit of kitchen-sinking. Surely, it would be no surprise?
Dividend
We saw how Lloyds’ announcement of a special dividend was cheered yesterday, so what of Barclays’ dividend?
At the start of 2015, the bank said “we … continue to target a 40-50% payout ratio”. However, at the half-year stage, new chairman John McFarlane announced that the target of “a particular payout ratio range” was being dropped. In its place is a rather woolly “sustainable and progressive dividend policy”.
With Barclays focusing on improving the returns of the business while maintaining capital strength, a positive dividend surprise on Tuesday appears unlikely to me.
Looking ahead
Perhaps the biggest driver for investor sentiment will be a fuller account of Jes Staley’s plans and targets. So far, his official statements amount to a few short paragraphs on broad initiatives in the investment bank. The market could welcome more flesh on the bones, and it could be enough to get the share price rising from what is currently a depressed valuation.
Mr Staley has already personally splashed out £6.5m to buy shares at 233p. With the shares now trading at 165p — a mere 8.5 times 2015’s expected earnings and a whopping 43% discount to last reported tangible net asset value — there certainly appears to be a good deal of potential for a re-rating on a sniff of good news.