Barclays is set to reveal a steep fall in annual profits on Thursday, adding to the banking giant’s headaches as it comes under pressure from an activist investor.
The lender is expected to report pre-tax profits of £2.94 billion, down 17% from £3.54 billion in 2017, as it counts the cost of litigation and conduct charges, according to analysts at Morgan Stanley.
It comes as Barclays faces the threat of activist investor Edward Bramson muscling his way on to the board, ramping up calls for the lender to curtail its investment arm and increase returns for investors.
Mr Bramson’s investment vehicle Sherborne Investors – through which the New York-based investor has built a 5.5% stake – has submitted a resolution to Barclays to be considered at the annual general meeting on May 2 to appoint him to the board of directors.
The annual results also come amid the high-profile criminal trial against ex-Barclays boss John Varley and three of his former colleagues over emergency fundraising from Qatar at the height of the financial crisis.
The UK’s Serious Fraud Office (SFO) claims the four men secretly paid £322 million to Qatar in return for its investment in two capital calls, which allowed Barclays to escape a UK government bailout in 2008.
Varley, Roger Jenkins, Richard Boath and Tom Kalaris all deny wrongdoing.
The bank’s results will show a hit from litigation and mis-selling costs, after this sent half-year profits slumping 29% to £1.7 billion.
Its interims were knocked by further payment protection insurance (PPI) costs and a £1.4 billion settlement with US authorities over its sale of mortgage-backed securities in the lead-up to the financial crisis.
But with these charges stripped out, analysts are expecting annual profits to rise 23% to £5.83 billion.
The figures also follow a difficult earnings season for its Wall Street counterparts, which were knocked by turbulent markets and a sharp fall in bond and currency trading revenues over the final quarter of 2018.
JP Morgan figures were lower than expected after a 16% hit to fixed income revenues, while Citigroup also suffered.
This could also take its toll on Barclays’ investment banking arm in the fourth quarter of 2018, although the wider group is expected to post a 19% rise in underlying pre-tax profits to £566 million.
The results cap a difficult year for chief executive Jes Staley after he was fined £642,430 by regulators in May as punishment for attempting to unmask a whistleblower, while he also saw £500,000 in bonuses clawed back over the matter.
And 2019 looks set to be equally challenging as he prepares for a battle with Mr Bramson and the headache of an impending Brexit.
Meanwhile, Lloyds Banking Group is expected to report a sharp rise in annual profits next week, while chief executive Antonio Horta-Osorio is likely to be quizzed over how Brexit could hit the lender.
City analysts expect Lloyds to see pre-tax profit rise over 20% to £6.4 billion for 2018 on Wednesday, up from £5.3 billion a year earlier.
Net income is forecast to grow slightly to £17.8 billion from £17.5 billion, while operating costs are expected to remain relatively stable at £8.2 billion.
The net interest margin – the difference between what a bank pays savers and charges borrowers – is to increase slightly to 2.93% from 2.86%.
Despite the solid numbers, Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, believes that investors should focus their attention on Lloyds’ mortgage lending activities in the context of Brexit.
“As the UK’s largest mortgage lender, it’s here that investors should focus their attention. The domestic lending space isn’t as rosy as it once was. Brexit uncertainties have weakened demand for, and availability of, credit.
“This means extra attention needs to be paid to the performance of Lloyds’ recently acquired MBNA (credit card) business, and its mortgage book.
“While unemployment and interest rates remain low – usually good news for lenders – it’s important bad loans and default levels aren’t creeping up. Next week gives Lloyds the chance to prove it’s in a sturdy position, regardless of the wider uncertainty”.
Ms Lund-Yates added that Lloyds was the hardest hit by the payment protection insurance (PPI) scandal, so the August claims deadline will be positive for shareholders, although she notes that if claims pick up it could produce some short-term pain for the bank.
Pay details are also expected to be released alongside results. Last year, the bank revealed that chief executive Antonio Horta-Osorio’s total remuneration package rose 11% to £6.4 million for 2017.
On Friday, the lender announced that Morgan Stanley investment banker William Chalmers will become its next chief financial officer following the retirement of incumbent George Culmer in June.
Mr Chalmers’ pay will be around £1.3 million a year and Lloyds is to pay him £4.4 million to cover awards he will forfeit when he leaves Morgan Stanley.
Lloyds will also eager to provide an update on the first year of its £3 billion transformation programme.
The high street bank is the midst of a three-year strategy to invest in revamping its banking app, digitise processes by 2020 and scale its financial planning and retirement businesses.
The increased investment to boost its digital offering is to counter the threat posed by digital-only challenger banks such as Starling and Monzo that have sprung up in recent years.
Analysts at Societe Generale described Lloyds as the “best-placed European retail bank to sustainably fund investment to counter fintech threats”.
Lloyds is bolstering its financial planning business and last year announced a tie-up with wealth manager Schroders.