Shares in Barclays (LSE: BARC) (NYSE: BCS.US) are down by 2.5% today as the bank released a mixed set of results for 2014. While on an adjusted basis they show that progress is being made, there are still a number of challenging issues that Barclays faces, and is set to continue to face during the course of 2015.
For example, Barclays has set aside a further £200m as a provision against further payment protection insurance (PPI) claims in the fourth quarter of the 2014 financial year. This means that during the course of the year the bank set aside a total of £1.1bn regarding PPI claims and this looks set to be a continuing trend over the medium term.
In addition, Barclays has also set aside £1.25bn during the second half of 2014 for foreign exchange litigation costs. While disappointing, CEO Anthony Jenkins has stated that he expects to make significant progress in resolving issues such as the alleged rigging of foreign exchange markets during the coming year.
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Of course, it’s not all bad news. On an adjusted basis Barclays has increased profit before tax by 12% to £5.5bn, with a key reason for this being impressive progress on cost reduction. For example, Barclays has been able to decrease total adjusted operating expenses by 9%, with a reduction in the bank’s headcount of 5% being a key reason for this. In addition, credit impairment charges have fallen by 29% to £2.2bn, as the bank makes further progress in this space.
Looking Ahead
Clearly, today’s results show that Barclays still has some way to go with regard to litigation costs and PPI claims. In addition, its investment banking performance was slightly disappointing, but it remains a division (and a bank) in the midst of a major transformation. As such, it is perhaps of little surprise that its results reflect this, with there being major positives (such as cost reduction) but also some disappointments (for example continued uncertainty regarding the outcome of litigation).
Despite this, Barclays has considerable long-term potential. It continues to trade considerably below its net tangible asset value per share of 285p, and this highlights that it offers vast scope for share price gains moving forward. And, with its bottom line set to further improve over the medium term as the costs associated with litigation and PPI redress are likely to fall as the bank makes further progress with its cultural changes, investor sentiment in the bank could start to positively change as we move through the course of 2015.
So, while today’s results are somewhat mixed, they show that Barclays is making the changes necessary to deliver strong and stable performance moving forward. As such, now looks set to be a good time to buy ahead of a bright medium- to long-term growth outlook.
