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Barclays boss signals streamline plans as bank reveals 25% rise in profits

Published 29/07/2015

John McFarlane was named interim chairman for Barclays after chief executive Antony Jenkins was fired
John McFarlane was named interim chairman for Barclays after chief executive Antony Jenkins was fired

Barclays boss John McFarlane signalled plans to ramp up growth, squeeze costs and streamline the business after announcing a 25% rise in first half profits.

Interim results showing an increase in pre-tax earnings to £3.11 billion come just three weeks after chief executive Antony Jenkins was fired over lacklustre revenue growth.

New chairman Mr McFarlane has taken the reins on an interim basis.

The rise comes despite Barclays taking a hit of more than £1 billion during the period to compensate customers over scandals such as payment protection insurance (PPI) mis-selling.

This included a fresh £850 million in the second quarter, mainly from an extra £600 million for PPI - taking total provisions for the affair to date to just under £6 billion.

Reports have suggested Barclays is planning to speed up its cost-cutting drive by axing more than 30,000 jobs.

Mr McFarlane acknowledged that the lender needed to "accelerate growth in earnings" and slash its ratio of costs to income, though he declined to issue new targets for the group.

He said he wanted to instil a "high performance ethic" and "streamline and eliminate unnecessary and cumbersome bureaucracy".

"There is a lot we can do to accelerate our progress and the work has already begun," said Mr McFarlane.

The executive chairman spelt out that those parts of the business that were not making enough money would soon be axed.

He said the bank would "act quickly to curtail activity which is marginal or which will not deliver the return on equity we require".

Mr McFarlane added: "Barclays today has a good portfolio of businesses. However, we need to accelerate the execution of the strategy.

"There is more that can be done to deliver better returns for shareholders, faster, and that work has begun."

He indicated a focus on UK personal and commercial banking, the bank's cards business and on Africa, as well as investment banking in Europe and the US.

Mr McFarlane had warm words for the investment banking arm. Mr Jenkins had taken the axe to the division and there has been much speculation over its future since his departure.

Pre-tax profit at the division rose by 36% to £1.44 billion in the first half as costs were squeezed.

Mr McFarlane said: "I am personally pleased with recent progress in the investment bank."

The period saw Barclays reach settlements with authorities of £1.6 billion, mainly relating to probes by US and UK regulators into foreign exchange manipulation.

Extra provisions had already been made by the lender in the first quarter of £800 million to cover "ongoing investigations and litigation" primarily related to forex, taking the total pot to just over £2 billion.

Mr McFarlane said: "We continue to seek to put conduct issues behind us."

Elsewhere, pre-tax profit at the personal and corporate banking division rose 4% to £1.53 billion.

Charges for loans that have gone bad fell by 23%, attributed to the improving UK economy and particularly lower defaults of large corporate clients.

But income from personal banking was 2% lower as customers switching to lower mortgage rates - amid fierce competition for home loan customers - put pressure on profit margins.

The results also showed that a net 98 bank branches had closed over the last year, with the bank's costs additionally reduced by increased automation of services.

Meanwhile Mr McFarlane revealed a flat dividend of 6.5p was expected for the current year as Barclays focuses on improving returns and accelerating its strategy while maintaining its capital strength.

But he indicated a "progressive dividend policy" would be aimed for to improve the pay-outs to shareholders over time. Shares rose 2%.

The bank revealed that its £850 million increased provision for customer redress included £250 million for those mis-sold packaged bank accounts.

These types of accounts involve customers paying a fee in return for benefits. Barclays withdrew from offering them in 2012.

Meanwhile the £600 million increase in PPI provision was blamed on a fall in compensation claims over the scandal - which has dogged UK banks for years - not being as rapid as expected.

Finance director Tushar Morzaria added that the bank was receiving "a lot of inbound claims" where the claimant had not had a PPI policy with the bank at all.

The costly process of confirming this through customer details and old address records made it "a little bit harder to process those claims that are valid", he added.

Mr Morzaria, speaking on a conference call with journalists, sidestepped a question about his view on the departure of Mr Jenkins.

He said: "There has been quite a lot written about the circumstances leading up to Antony's leaving the company and there is not much more I can add."

Mr Morzaria also brushed off speculation linking him with the chief executive's role, saying he was focusing on his role of finance director.

There was no announcement on any plans to cut jobs after speculation that the group planned to cut its workforce from 132,000 to below 100,000 by the end of 2017.

Mr Morzaria said: "We are not targeting that particular headcount number. We are just focusing on the efficiency of the company."

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: "With or without a new chief executive, Barclays appears eager to press ahead with the increased pace of restructuring within the group.

"Most of the key metrics continue to show improvement, with a reduction in operating expenses and impairments being complemented by another robust income showing, leading to a notable hike in adjusted profits."

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