Barclays to Move Beyond Fines as McFarlane Takes Control

Updated on

Barclays Plc’s new chairman, John McFarlane, promised to move the bank on from the “errors of the past” and speed up the overhaul of the lender to improve investor returns.

“A great deal still needs to be done,” he wrote in a letter to shareholders published at the bank’s annual meeting in London on Thursday. The dividend is “less than we would wish” and “we need to ensure that Barclays is an attractive investment proposition going forward.”

McFarlane, 67, who replaced David Walker, 75, after the meeting, arrives at a bank still mired in misconduct scandals as it struggles to revive earnings and profitability. Chief Executive Officer Antony Jenkins has targeted a 12 percent return on equity, a measure of profitability, by 2016, vowing to do “whatever it takes” to fix the firm’s investment bank, his worst-performing division.

“The overall message is very shareholder friendly and a lot of pressure will fall on management’s shoulders to deliver,” said Joe Dickerson, an analyst at Jefferies International Ltd. in London, who has a buy rating on the stock. “One senses a greater urgency now in moving from a recovery proposition to a sustainable long-term proposition.”

Jenkins has succeeded in mollifying investors in at least one area. Dissenting votes for Barclays’s pay package shrank from 24 percent of shareholders last year to 2.5 percent at Thursday’s meeting, Barclays said in a statement.

Board Replacement

As chairman of Aviva Plc in 2012, McFarlane helped restructure the U.K. insurer, replacing most of the board and boosting returns. Several individual shareholders expressed hope he will improve profits and the dividend at Barclays at the meeting.

“We need to reposition and improve those segments across the Barclays group, which operate below our required return,” McFarlane wrote, pledging “a more dynamic reallocation of capital.”

“While much has been done to clean up conduct issues from the past, some unfortunately still haunt us, causing substantial financial and remedial costs.”

Barclays rose 2 percent to 258.45 pence in London trading, outperforming the Bloomberg Europe Banks and Financial Services Index, and extending its gain this year to 6 percent.

Costly Past

The errors of the past have been costly for Barclays since Jenkins became CEO in 2012. The bank has set aside 1.25 billion pounds ($1.9 billion) to cover settlements into allegations it manipulated currency benchmarks and has paid more than 5 billion pounds in customer compensation for improperly sold loan insurance.

Walker said the bank was frustrated by unsettled legacy issues, calling the situation “deplorable” at the meeting.

“We remain focused on addressing the behaviors at the center of historic conduct issues, including those relating to the ongoing investigation into foreign exchange,” Jenkins said Thursday. “We will make significant, though sometimes difficult, progress in this area in 2015.”

The CEO also said the bank was close to “taking the question of capital strength off the table for good” after its common equity Tier 1 level, a measure of financial strength, increased to 10.3 percent at the end of 2014 from 9.1 percent a year earlier. The investment bank was showing signs of positive performance and the lender plans to pay out 40 to 50 percent of adjusted earnings “over time.” It paid 38 percent in 2014.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE