Barclays Continues Dividend Payouts Despite Profit Struggles
On Thursday, Barclays announced its annual earnings report. The bank reported a profit of 1.53 billion pounds in the year 2020, which is 38% less than the profit it brought in in 2019. The profit has exceeded analysts’ expectations and surprised many who were expecting poorer results owing to the effects of the pandemic last year.
In the fourth quarter alone, Barclays reported a profit of 220 million pounds despite lockdown measures affecting businesses during that quarter. Analysts were expecting a loss of about 45 million during the quarter with the annual profit projected at 1.22 billion pounds. The bank proved both these projections wrong in the end.
How the pandemic affected the bank
During the pandemic and the resulting lockdowns, people stopped spending, which had a negative impact on banks all over the country. However, the black swan event also made the public realize how important savings were and many proactively worked to improve their financial standings. Barclays says it noticed growing deposits by its customers. It believes that once the pandemic fears subside, this money will go back into the economy through a surge in consumer spending. It expects to see these effects in the second half of 2021.
The Bank of England had stopped banks from paying out dividends to its shareholders after the pandemic. In December, however, the bank gave them the green signal to go ahead with dividend payments. A dividend of one pence per share was announced by Barclays in its annual results. On top of that, the bank announced a 700 million pounds share buyback program, which is set to boost the share price further.
Profitability in a tough year
While most businesses suffered during 2020, Barclays performed exceptionally well. The CEO of Barclays, Jes Staley, attributed that to the diversification in its business. He said while consumer banking suffered, investment banking brought in a handsome return of 13%, helping the bank stay profitable throughout the year.
While there were a lot of positive signs in the annual report, the retail arm of the bank reported some worrying signs for the future. The reasons for the struggling retail business were mostly lower margins as well as people taking on less credit and improving their financial position by paying off debts.
The pandemic forced Barclays to increase its cash reserves for bad loans by 150% to 4.8 billion dollars. Such a move suggests the bank might be preparing for upcoming troubles in the economy. However, bad debts in case of a faltering economy won’t just be Barclay’s headache but that of the banking sector as a whole.
Some people are also skeptical about the lack of details in the 2021 forecast as well as the small amount of dividend. The lack of precise forecast can be attributed to uncertainty in the economy and the bank trying to play it safe. As for the dividend, the amount is low but is also the starting point for the recovery. Analysts were not expecting the dividend to be restored to pre-pandemic levels.