Barclays (LSE: BARC) released full-year results Wednesday, and investors responded badly. The share price immediately dipped, losing 10% by midday.
The share price had been gaining ground since October, ahead of the FTSE 100‘s general uptrend. But the latest setback now puts them on a 14% loss over the past 12 months.
The disappointment seems partly down to a 19% fall in attributable profit, to £5bn. The final quarter saw a dip too, of 4%. Rises in interest rates should have helped boost lending in the banking sector. But Barclays reaped a disappointingly small benefit.
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Returns
We also saw a decline in return on tangible equity (RoTE), down from 13.1% a year previously, to 10.4%. Perhaps, more worryingly, the Q4 figure was lower, at 8.9% compared to 9% a year ago.
I see a fall as unsurprising really, considering the economic pressures we faced in the second half of the year. But it can be a key measurement for banks, and I find the size of the decrease disappointing.
Barclays’ year was clouded by a trading error and the resulting financial penalties. It oversold some financial products in the US to the tune of $17.7bn more than it had the authority to. That led to a $360m (£298m) fine, and the bank had to set aside £450m for compensation to investors.
The hit from it seems easily manageable, compared to an annual profit of £5bn. But it’s yet another embarrassing example in a string of regulatory failings.
Dividends
On the upside, the bank lifted its 2022 dividend by 21%, to 7.25p per share. Share buybacks declined by a third compared to 2021 though. And that means the total payout equivalent decreased from 15p per share to 13.4p.
I still think the dividend rise is a healthy sign. We should only see Buybacks as exceptional returns, and we shouldn’t expect them to be maintained every year.
These results might not look too good, but they’re perhaps not too far from expectations. So, looking forward, do the shares really deserve a 10% fall in response?
Outlook
Markets will surely be turned off by the board’s outlook for 2023. The key point for me is Barclay’s RoTE expectation. It has a target of “greater than 10%” in 2023. But we’ve just seen a figure of 10.4% for 2022, down from 13.1% in 2021. Yes, we’re heading for recession this year. But the Bank of England thinks it won’t be as bad as previously feared. Against that background, I find that RoTE target uninspiring.
So what’s my take on Barclays now? Being bearish in the short term is understandable, and I reckon we could have a volatile year ahead.
But it’s easy to lose sight of the long-term picture. Forecasts put Barclays shares on price-to-earnings (P/E) multiples of not much more than five. I’d say that more than compensates for a likely lacklustre 2023.
And I still see Barclays as a potential buy for long-term income investors who do their research.
