Looking back on the UK-focused FTSE 100 banks since the financial crisis, I see some irony in that Barclays (LSE: BARC), the one that didn’t need a government bailout, has been the market’s least favourite of late.
Over the past 12 months, shares in Lloyds Banking Group have dipped by a modest 3%, and Royal Bank of Scotland has posted a 22% gain. But Barclays shareholders are sitting on a 9% loss.
Looking back five years shows a similar picture. RBS shares are down 17% (as its earnings and dividend recovery have really only just got properly under way), while Lloyds with its earlier return to health has seen a 35% share price gain. Barclays? Down 23% over five years.
To be fair, since the peak in 2007 just before the crisis exploded, Barclays shares have actually lost the least with a fall of 69%. Lloyds shares are still down 82%, and RBS has lost 97%.
Misconduct
Barclays’ big problem has been regulatory misconduct, and it’s faced significant losses from fines and related costs. For the 2017 year just ended, the bank recorded £1.2bn in litigation and conduct costs, including £0.7bn relating to the long-running PPI scandal.
Ten years on, the Serious Fraud Office has raised charges related to the deal that saved Barclays from going cap-in-hand to the taxpayer in 2008. The bank secured a £12bn loan from Qatar to keep it afloat, but the SFO alleges that a £2.3bn loan from Barclays to Qatar Holdings was an illegal sweetener.
So much focus and cash drawn away from the straightforward business of rebuilding a profitable bank has led to a slump in EPS, which dropped from 15.3p in 2013 to just 3.5p for 2017 — earnings had previously been growing strongly in the early post-crash recovery years.
A resulting key problem has been the failure to get the dividend back to any sort of reliable growth, as the two bailed-out rivals have achieved.
Dividends at Lloyds were reinstated in 2014 and rose to yield 4.5% last year, and forecasts suggest close to 6% this year. Even laggard RBS is finally set to rejoin the dividend club in 2018 with a yield of 3%, and there’s better than 5% indicated for 2019.
Dividend
Barclays’ dividend, however, was slashed for a second time in 2016 to yield just 1.3%, after having started to pick up.
But there’s good news on the dividend front, after the bank confirmed the 3p per share expected for 2017 and told us it intends to more than double that to 6.5p per share in 2018.
Chief executive James E Staley, while recognising the presence of some remaining legacy issues, added: “I am confident in the capacity of this business to generate excess capital going forward, and it remains our intention over time to return a greater proportion of that excess capital to shareholders through dividends.“
The 2018 yield would be around 3% at today’s share price, which is still some way behind the 5.7% on offer from Lloyds (which remains my favourite of the big banks), but it represents a significant milestone.
On a forward P/E of around 10, I don’t see Barclays as the best value in the sector right now, and the SFO thing is a big worry. But I’m cautiously optimistic that the modest share price recovery since early February will continue.
