Managing Your Cash Flow

Barclays profit increase attributed to previously troubled investment banking unit

3 min read

29 July 2015

Executive chairman John McFarlane has revealed that Barclays' investment banking unit reported a strong turnaround – but it won't stop him from scrapping its dividend target in a move to improve returns for shareholders.

John McFarlane, who has become executive chairman of Barclays until a successor for former CEO Antony Jenkins is found, said that existing management plans had set shareholder value creation too far out in the future. Barclays shares stand where they did six years ago, and the dividend is flat.

He stated that more branches would close and jobs would go. “Barclays is not efficient,” McFarlane said, while pointing out that the bank needed more “energy and speed of decision-making”.

Barclays has, however, revealed in a statement that profits had increased by four per cent in both the retail and corporate bank, to £1.5bn, and by four per cent in Barclaycard to £795m.

According to the Telegraph, “statutory pre-tax profits came in at £3.1bn for the first half, up 25 per cent on the same period of 2014. African banking profits rose by 12 per cent to £540m, while investment banking profits soared 36 per cent to £1.4bn.”

McFarlane said he was pleased with the investment bank, and indicated there are no plans for a radical shake-up of the unit. Instead, he plans to focus on the debt and equity capital markets businesses – as well as cutting the less profitable and more capital-intensive fixed income companies. McFarlane suggested that European and US investment banking was a “key franchise.”

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“I am personally pleased with recent progress in the investment bank,” McFarlane said. “The challenge of the team is to convert this performance into sustainable economic returns through subsequent period.”

The bank has posted an 11 per cent drop in investment-banking fees, which include mergers and acquisitions. 

“What you’re seeing are the fruits of all the hard work the investment bank has put into reshaping and repositioning that business over the bulk of the last year, and it is pleasing to see the returns are hitting that double-digit level consistently over the first half,” said FD Tushar Morzaria.

“In terms of where we go from here, it is a continuation of that strategy, refining it and looking for areas of improvement. We’re not unveiling any new targets or any substantial changes to the business model.”

McFarlane claimed the bank will need to accelerate growth in earnings, return on equity and capital generation.