Barclays takes loss on the chin, but better prospects in sight

Comment Martin Flanagan

Barclays doesn’t look too brilliant when you just see the headlines. Big losses in the first quarter, a large fine by the US Department of Justice (DOJ) and a hefty further financial provision for insurance mis-selling.

But chief executive Jes Staley is not whistling in the dark when he says these are legacy issues from a decade ago, and that Barclays has cause to feel its more stripped-down business model could stand it in good stead as the bank moves forward unencumbered by the shadows and financial punishments for historical behaviour.

Underneath the lumpy negative numbers, reasonable (though not stellar) progress is being made by Staley and his team. The restructuring is all but complete, and the investment bank – always pivotal to Barclays, apart from a short period of time when it appeared relatively out of favour with former chief executive Antony Jenkins – has made a decent start to the year.

Impairment charges are lower, and credit quality seems good. True, the latest litigation costs will damage both Barclays’ capital cushions and cost/income ratio in the short-term. But hopefully that litigation is now firmly in the rear view mirror, and Staley can focus on the road ahead.

We have yet to see whether the maverick activist investor stake in the bank will take management’s eye off the ball.

But taken in the round, Barclays can make a decent case that this quarter is just a necessarily painful one that was necessary to put some issues to bed. There is a good chance that the next quarter, and indeed the whole of 2018, may show progress for the bank.

CVAS are cool

However did we rub along without company voluntary arrangements (CVAS)? They are the solution du jour for struggling companies, particularly retailers with their backs against the wall.

A CVA is a compromise between a company and its creditors. On the high street, it means retailers can close outlets, shed staff and squeeze landlords for lower rent to stave off failure.

Carpetright is the latest to invoke the mechanism, with 75 per cent of creditors backing the plan. At a CVA’S heart is the tacit threat to landlords that if you don’t cut the rent we may go bust and you will lose big-time. Cushty.