LONDON: Barclays will pay out more than a billion dollars in dividends and buybacks to shareholders after beating first-half profit forecasts on strong investment banking fees and the release of cash set aside to cover bad loan charges.
The British bank, which reported a near-quadrupling in first-half profits, said it would pay an interim dividend of 2 pence per share, equivalent to around 340 million pounds in total, after the Bank of England in July scrapped payout curbs.
Barclays will also buy back 500 million pounds of its own shares, as it forecast bad loan charges would remain below historical levels due to the improved economic outlook and low default rates on unsecured lending.
The bank said it was able to release credit provisions due to the improved economic outlook since the start of the year, with the UK economy forecast to reach pre-pandemic levels mid next year in its core scenario.
But Barclays also said that the full impact of the wind-down of government support measures on customer finances was not yet known.
"No one has really lived through the unwind of these schemes, and therefore we don't entirely known how many furloughed people will get jobs or not get jobs," Finance Director Tushar Morzaria told Reuters.
The bank also factored in a severe downside scenario into its forecasts in case vaccine supply was disrupted and new variants were resistant to vaccines.
Barclays shares rose 4%.
The bank reported profit before tax of 5 billion pounds ($6.94 billion) for the six months to June 30, well above the consensus forecast of 4.1 billion pounds from analysts polled by the bank and up from 1.3 billion a year ago.
The results were boosted by the bank releasing 742 million pounds in cash set aside for bad debt charges that have yet to materialise, as government support measures prop up the economy.
"Barclays undertaking a further share buyback and upping its half-year dividend marks another step on the road to recovery for the UK’s major banks and financial sector, at large, from the dark days of dividend suspensions," said John Moore, senior investment manager at Brewin Dolphin.
Barclays' investment bank continued its strong run, as volatile markets during the pandemic led to frenzied trading, while companies have raised record amounts through blank-cheque investment funds and stock listings.
Equities income rose 38% and investment banking fees from advising on deals rose 27% in the first half of the year, Barclays said.
Its fixed income, currencies and commodities (FICC) business meanwhile fell 37% against a strong first half a year ago.
The bank said its costs rose 10%, mainly from 300 million pounds of expenses associated with cutting its real estate footprint and higher bonuses due to its improved performance.
Analysts said that while Barclays' first half results were strong, it would need to rein in those costs and put forward a convincing plan to improve revenues in the longer term.
"The key question as with other banks, is the outlook on the growth of their loan book and net interest income," said Sudeepto Mukherjee, financial services consultant at Publicis Sapient.
"Barclays shares have been under pressure in the last few months and we have not seen them capture significant share from the buoyant mortgages market in the UK," he said. ($1 = 0.7206 pounds) - Reuters