View the article online at http://citywire.co.uk/money/article/a885851
Barclays shares tumble as dividends slashed
Shares tumble 10% and are briefly suspended as bank shocks market by more than halving dividends for this year and the next.
Shares in Barclays (BARC) have tumbled after the bank announced it was to cut dividends by more than half this year and the next, as profits disappointed.
The bank has announced a final dividend for 2015 of 3.5p, bringing the year's full payout to 6.5p, in line with 2014's payment. But it said the dividends for 2016 and 2017 would fall to 3p, and be paid semi-annually rather than quarterly.
Shares in the bank fell 10% to 154.9p on the news and were briefly suspended due to the volatility.
'This was the first reduction in Barclays' shareholder distribution since 2009 and laid waste to analysts' forecasts of an increase to somewhere above 8p,' said Russ Mould, investment director at AJ Bell.
'Barclays had been expected to offer the second-greatest amount of dividend growth in 2016, in sterling terms, and the cut now leaves the FTSE 100 struggling to grow aggregate dividend payments from 2015's estimated £68 billion mark.'
The news came as the bank unveiled a full-year profit of £5.4 billion, down from £5.5 billion in 2014 and below the £5.8 billion analysts had expected. That figure was weighed down by a further £1.5 billion cost for payment protection insurance mis-selling.
Barclays also said it was selling down its African division, claiming that while 'a high quality franchise', the business posed 'specific challenges to Barclays as owners, such as the high level of capital held [and] the international reach of the UK bank levy.'
Barclays analyst Joseph Dickerson, one of the analysts calling for the bank to cancel dividends over the next two years, welcomed the news.
'Whilst Barclays' earnings missed estimates, the group is taking what we believe are the right steps to move to a more than 13% core equity tier one ratio [a measure of banks' financial strength], including a 54% dividend per share cut; selling down its African business; further risk-weighted assets reduction,' he said.
'The key question is whether investors are willing to rerate the shares ahead of delivery by yet another chief executive.'
But Gary Greenwood, analyst at Shore Capital, said the cost-cutting measures were not 'aggressive enough'.
'Overall, this is a pretty disappointing update from Barclays and we suspect the market will not be too impressed by the changes to guidance or the measures being taken to improve performance,' he said.
Barclays' results leave Lloyds (LLOY) as the only major UK bank raising dividends. While the bank will pay out 2.75p for the year including a special dividends, a huge increase on last year's 0.75p, dividends across the rest of the sector have either stalled, been cut or postponed.
While HSBC (HSBA) managed to maintain dividend payments, Standard Chartered (STAN) cut them last year and Royal Bank of Scotland (RBS), which hasn't paid a dividend since the financial crisis, has said they won't resume until 2017 at the earliest.
'After the highs and lows of Lloyds and RBS last week, the market was eager to see which end of the spectrum Barclays would occupy,' said Mould. 'And while there were some encouraging figures from its core business, the results overall put it firmly on the low side.'
Laith Khalaf, senior analyst at Hargreaves Lansdown, said the bank was still cleaning up the 'grizzly legacy bits' weighing it down under Jes Staley, who was appointed last year after the surprise sacking of Antony Jenkins.
'The new boss Jes Staley is clearly taking a big broom to Barclays' operations in a bid to dramatically simplify the group. When the dust has cleared, the bank should have two high quality financial services divisions, and the potential to offer investors a decent dividend, but it's going to take some elbow grease to get there,' he said.
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- Barclays PLC (BARC.L)
- Lloyds Banking Group PLC (LLOY.L)
- HSBC Holdings PLC (HSBA.L)
- Standard Chartered PLC (STAN.L)
- Royal Bank of Scotland Group PLC (RBS.L)
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by Gavin Lumsden on Oct 21, 2016 at 17:18