What's going on?
Barclays, Britain’s second-largest bank, announced on Thursday that it would double its payout to shareholders (a.k.a. dividend) and may return even more cash to them through a stock buyback! But that doesn’t necessarily mean that the bank’s problems are behind it…
What does this mean?
Back in 2016, Barclays cut its dividend as its new CEO asked shareholders for breathing space in order to restructure the struggling bank. While there’s been some progress, a few problems are still outstanding: Barclays’ investment banking division, for example, is eating up cash relative to other, more profitable businesses (like consumer lending). Meanwhile, the bank booked an overall loss thanks to over $1 billion of costs related to historic misdeeds (and may have to pay even more fines in the future).
Why should I care?
For markets: Barclays may be trying to entice investors as competitors outperform.
Barclays was one of the worst-performing stocks among European banks last year; returning cash to shareholders seems to be a way to lure investors back to the stock (it was up over 4% on Thursday). Rising above the pack might seem even more important as other banks’ finances appear to be on the up: HSBC this week beat analysts’ expectations on profit, while Lloyds reported its highest-ever annual profit and said it would both buy back $1.4 billion of shares and boost its dividend.
The bigger picture: The return of market volatility is a relief for some investment banks.
Barclays’ CEO has taken a lot of heat for betting the future of his bank on its investment banking division. In general, investment banks have struggled over the past year because of low volatility on markets – those focused on trading, like Goldman Sachs, are particularly reliant on making profit from rapid changes in the values of investments. Now that volatility is beginning to re-emerge in markets, however, investment banks with substantial trading divisions, like Barclays, should deliver more substantial profits.