FTSE 100 bank Barclays (BARC) reports a 2017 net loss on Thursday but its shares are up 5.8% to 213.9p regardless.
The positive reaction to the bank’s full year to 31 December 2017 results was probably aided by it announcing the ‘restoration’ of a 6.5p per share dividend for 2018. This is more than double its previous figure and ahead of market forecasts.
On today’s share price, this implies a dividend yield of 3%, a return to levels last seen in 2015. Given that a payout is one of the major reasons investors buy banking stocks, today's bump in the share price should come as no surprise.
WHAT HAS CHANGED?
Barclays net loss for 2017 was primarily due to write downs and losses on the disposal of Barclays Africa which came in at £2.5bn as well as litigation and conduct charges of £1.2bn.
When these items are stripped away, full year adjusted pre-tax profits for 2017 were up 23% to £4.5bn, although slightly below market estimates of £4.7bn.
The bank surprised on the upside with its common equity tier one (CET1) ratio of 13.3%, beating both market forecasts of 12.9% and Barclays’ own target of 13%.
CET1 is a measure of a bank’s ability to withstand economic shocks and the disposal of non-core assets such as its Africa division has helped the bank increase its capital buffer.
Its 2017 figure is almost one percentage point higher than 2016’s 12.4% and has provided the flexibility to increase the dividend.
It has been clear this week that a bank’s fortunes are closely linked to its dividend policy. Lloyds (LLOY) and HSBC (HSBA) saw different reactions based mostly on their respective plans for returning capital to shareholders.
On the downside, Barclays investment bank division had a poor fourth quarter to 31 December as fixed income, currency and commodity trading revenues were down 21% although this was in line with its peers.
Conduct issues are also continuing to impact Barclays as its chief executive Jes Staley is under investigation by the Financial Conduct Authority after trying to identify a whistleblower. The bank is also being investigated by the Serious Fraud Office over an emergency funding deal with Qatari investors back in 2008.
Gary Greenwood, analyst at broker Shore Capital, says ‘we believe that the current share price is giving management no credit for its ability to improve returns, with delivery providing scope for significant upside potential’.
