By Lawrence White and Andrew MacAskill
LONDON (Reuters) - Barclays (L:BARC) reported a surprise increase in its capital reserves on Thursday thanks to the speedy sale of unwanted assets, helping the British bank put money aside as it braces for legal battles and worsening market conditions.
Reporting results for 2016, the bank said its core capital ratio, a key measure of financial strength watched closely by central banks, rose to 12.4 percent, meaning the lender no longer needed to consider raising more money.
While Barclays profits were lower than expected, they nearly trebled from a year earlier as the bank emerges from an overhaul in which it is shedding unwanted assets, including most of its African business, to focus on the United States and Britain.
Analysts had only expected the bank's capital ratio to climb to 11.8 percent and the unexpected boost helped push Barclays shares up 3.4 percent to 243 pence, more than double their June 24 low after Britain's vote to leave the European Union.
"It has taken off the table a question we got quite often last year: will you need to raise capital? ... That should lay that question to rest," Chief Executive Jes Staley told reporters on a conference call.
Capital has been a key concern for investors since the Bank of England said last November that Barclays had fallen short of one of its targets in a stress test scenario, but stopped short of requiring the bank to submit a new plan to boost reserves.
"We are well positioned to absorb headwinds over the next few years. Certain legacy conduct issues remain and we intend to make further progress on them," Staley said in a statement.
The bank is facing an array of challenges including litigation costs in the United States, rising provisions for late credit card repayments and the need to complete the sale of its African division.
The capital boost came from rising profits from trading amid volatile markets and the faster than expected disposal of unwanted assets in 2016 included its Asian private bank, its Southern European cards business and Italian retail business.
Barclays said it would now close its so-called non-core division in June, six months ahead of schedule.
"The key in the results is the progress on capital ... The final cost of litigation does remain an uncertainty but the higher ratio gives the bank more flexibility and is welcome," Fiona Swaffield, analyst at Royal Bank of Canada, wrote in a research note.
TROUBLE AHEAD
Barclays reported an adjusted pretax profit for 2016 of 3.2 billion pounds ($4 billion), compared with 1.14 billion a year earlier. That was below the average forecast of 3.97 billion from analysts' estimates compiled by the bank.
The closure of the bank's non-core unit and improving investment bank performance, however, show the bank is turning the corner on its major restructuring at a timely moment given the host of challenges ahead.
The lender's investment banking division reported strong results from active fixed income trading, with credit trading up 44 percent in line with U.S. rivals that have seen similar boosts thanks to a backdrop of volatile markets.
Barclays now faces a suit from the U.S. Department of Justice on civil charges of fraud in the sale of mortgage-backed securities in the run-up to the 2008-09 financial crisis. So far, Barclays is alone among major banks in choosing to contest a case where rivals have settled.
The lender also posted a hefty 35 percent increase in credit provisions to 2.2 billion pounds as more customers, particularly in the United States, fell behind on payments.
The bank said it had reached an agreement with its African division on the terms of their separation that will see it pay Barclays Africa 12.8 billion rand ($988 million) to fund investments required to separate the two businesses.
The terms of the agreement are pending approval from regulators, the bank said, as it still searches for buyers.
Barclays said in March last year it would sell the stake in two to three years. So far, it has sold only one block of shares worth 12 percent of Barclays Africa Group in a deal last May, meaning it still owns 50 percent.
Attempts to dispose of the entire stake in one go have faltered, with interest from a consortium led by former Barclays CEO Bob Diamond and from Africa's biggest pension fund, Public Investment Corporation, not leading to a deal.