Jefferies analysts assign a Buy rating to Barclays PLC (NYSE:BCS) (LON:BARC) despite the bank reporting a drop in its fourth-quarter earnings.

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Barclays PLC (NYSE:BCS) (LON:BARC) reported a drop in its fourth-quarter earnings amid rising costs and a decline in its investment banking business.

Barclays’ leverage reduction plan

Joseph Dickerson and team at Jefferies point out that in regard to the leverage plan, Barclays PLC (NYSE:BCS) (LON:BARC) has announced a net £60 billion of further exposure reduction by 2015 (from end 2013). This, when combined with the £141 billion reduction in leverage in H213, translates into a total leverage reduction from end H113 of £200 billion (compared with management’s prior plan of £65-80 billion).

As reported earlier, in September, Jefferies analysts predicted the asset reduction plan of Barclays, which was £65-80 billion, could be increased to £185-£200 billion.

Jefferies analysts point out in their report that Barclays PLC (NYSE:BCS) (LON:BARC)’s leverage reduction plan is in line with the analysts’ expectations, as is the forgone revenue estimate of £300 million in 2015.

The analysts point out that Barclays group has not changed its 2015 expense base target of £16.8 billion, which is in line with the analysts’ expectations, though this may be a source of slight controversy.

Decline in pre-tax profit

On Monday, Barclays PLC (NYSE:BCS) (LON:BARC) unveiled overall profit numbers in an unscheduled trading update. Its full-year pre-tax profit, adjusted for exceptional items, fell by a third in 2013, compared with the year before to £5.2 billion.

However, today the bank provided more details indicating full-year pre-tax profit at its investment bank declined 37% to £2.5 billion. The bank’s revenues from the core of the operation comprising fixed income, currencies, commodities fell 17% year-on-year, following a similar decline reported by its European rival, Deutsche Bank.

Summarizing the results, the Jefferies analysts point out Barclays Capital revenues of £2.15 billion for Q4 is 1% ahead of Street, while its FICC was up 12% QoQ and down by 16% year-on-year. The analysts point out Barclays’ FICC is better relative to peers, while equities and IB are light relative to peers.

The analysts point out Barclays PLC (NYSE:BCS) (LON:BARC)’ FY 13 dividend of 6.5 p was in line with consensus, while its dividend pay-out guidance of 40% to 50% remains unchanged with 40% projected for 2014.

Turning their focus on CET1 regulatory capital ratio, the Jefferies analysts point out that Barclays PLC (NYSE:BCS) (LON:BARC)’ fully loaded CET1 regulatory capital ratio at 9.3% is 20 bps light on their estimates. They point out that Barclays’ management have reiterated 10.5% 2015 go-to level and 11.5% to 12% by 2019. The analysts anticipate 11.6% and 12.1% in 2015 and 2016 respectively.