Barclays interims impress but dividend flat as McFarlane targets accelerated change

Barclays first half results showed an strong increase in profits as it set aside a further £1.6bn provision for further litigation and mis-selling after paying the same amount in the period.

Newly bestowed with an executive role as chairman, John McFarlane highlighted his pleasure at recent progress in the investment bank, which generated a 36% increase in profit before tax to £1.44bn in the six months to 30 June, saying the challenge for this business was to "convert this performance into sustainable economic returns through subsequent periods".

This helped group adjusted profit before tax of £3.7bn climb 11%, with statutory PBT up 25%, on adjusted net operating income down 2% to £12.0bn. Net income in the second quarter of £1.85bn was above the £1.8bn expectations.

The bank's Tier 1 capital stood at 11.1% as it lowered its leverage ratio to 4.1% and cut risk-weighted assets to £57bn from £75bn.

The core return on average equity also stood at 11.1% thanks to what it said was a solid return on average equity performance across the businesses driven by the profit increase and a 7% reduction in total adjusted operating costs, with a cost-income ratio of 60%. The return on average shareholders' equity was up to 7.7% from 6.5%.

Barclays said it made "progress on legacy litigation and conduct matters" after settlements of £1.6bn reached with a regulators in the US and UK among others due to forex and fixed interest rate swaps.

An additional provision of £800m was made in for the ongoing forex investigations and potential litigation, taking the total provisions to £2,050m, with another £850m added in the second quarter for UK customer redress provisions that took this to £1.03bn.

Adjusted basic earnings per share of 13.1p were up 20.2%, with statutory EPS of 9.9p up 41%.

"The results reported today represent continued good progress for the business," said McFarlane, adding that all core franchises had performed well.

“We need to accelerate the execution of the strategy,” he added. “There is much more that can be done to delivery better returns for shareholders.”

He highlighted the need to accelerate growth in earnings, return on equity, and capital generation.

"To do this, we intend to grow revenues at least in line with the market, reduce our group cost-income ratio into the mid 50s, accrete and deploy capital wisely, and thereby over time achieve a group return on equity above our cost of equity."

He said it was "appropriate" to plan for a flat 6.5p dividend for 2015, as management focuses on "improving the returns of the business and accelerating the implementation of the strategy, while maintaining capital strength".

"Over time, rather than targeting a particular payout ratio range, we will aim to maintain a sustainable and progressive dividend policy, recognising the importance of dividend yield in delivering returns to shareholders."

McFarlane did not issue new targets for the group, but confirmed current remaining targets remained in place.

His final priority was to "instil a high performance ethic and process" across the bank, with much more of a focus on customers and clients and to streamline and eliminate "unnecessary and cumbersome bureaucracy"