Much progress for Barclays, but we must turn down volume to hear

LONDON – Commentators have focused attention on the standout headline in the Barclays Plc (BARC: LON) third quarter results that it has taken another big hit over insurance mis-selling. Another ÂŁ600m provision to meet Payment Protection (PPI) Insurance paybacks takes the bank’s total exposure over this scandal to a staggering ÂŁ8.4bn, more than a quarter of total market cap. The PPI mis-selling has cost the UK banking sector about ÂŁ35bn so far. But beyond the noise around PPI fines, Barclays appears to be in relatively good shape. Although analysts have been concerned about the impact Brexit – and cuts to the interest rate – might have on Barclays and other banks, Barclays made big money out of the increased volatility as trading increased amid uncertainty. It reported a 35% jump in profits spurred by fixed-income trading. Barclays has high hopes its investment bank will continue to be a money-spinner. With Barclays the most complained about high street bank, and traditional retail banks under pressure from challenger banks, disruptive technologies and economic headwinds, it makes sense for Barclays to keep its investment bank as a counterweight. The London-headquartered multinational is also disposing of non-core assets, including Barclays Africa – with the intention of reaching its core capital ratio target of 12.5%. Although the bank didn’t elaborate on Barclays Africa this week, it has emerged South Africa’s largest asset manager, the government’s Public Investment Corporation, is very interested in picking it up but has been struggling to pull together a consortium of black buyers who can come up with sufficient funding. With the Barclays share price rising following the release of its results, the market has given the collective thumbs-up to CEO Jes Staley’s restructuring plans. It looks like the worst might be over for the Barclays share price, which fell steadily from mid-2015 before showing signs of recovery in July after the Brexit vote shocked markets. – Jackie Cameron

Barclays

By Stephen Morris

(Bloomberg) — Barclays Plc said profit rose 35 percent in the third quarter as revenue from fixed-income trading surged to the highest in more than two years.

Pretax profit climbed to 837 million pounds ($1.02 billion) from 619 million pounds a year earlier, the London-based lender said in a statement Thursday. Excluding one-time items, profit was 1.7 billion pounds, beating the 1.53 billion-pound average estimate of five analysts surveyed by Bloomberg News.

The results may help Chief Executive Officer Jes Staley convince investors of the advantage of keeping an investment bank even after it posted lower returns than the lender’s other businesses in recent years. Staley has said calls to spin off the unit are “shortsighted” because it serves as a counterweight to the retail divisions, which analysts forecast will be hit by a slowdown in the U.K. economy after the Brexit vote.

A Barclays logo is pictured outside the Barclays towers in Johannesburg December 16, 2015. REUTERS/Siphiwe Sibeko
A Barclays logo is pictured outside the Barclays towers in Johannesburg December 16, 2015. REUTERS/Siphiwe Sibeko

“Barclays’s results are significantly better than expected at the headline level, driven by strong performances by the investment bank division and in non-core,” Raul Sinha, an analyst at JPMorgan Chase & Co., said in a note to clients. “Overall, these results show improving momentum in the restructuring story.”

Barclays shares climbed 0.7 percent to 183.05 pence at 8:17 a.m. in London. The stock had fallen 17 percent this year at the close of trading on Wednesday — after recovering 43 percent since hitting a nadir fours days after the June 23 Brexit vote. After a two-year slump, the bank trades at about half its book value.

Trading Revenue

Fixed-income revenue climbed 40 percent from a year earlier to 947 million pounds. Analysts had expected 876 million pounds in revenue from the business, according to the average of six estimates.

The surge echoed the performance of the five major U.S. investment banks, which collectively posted a 49 percent jump in revenue from that business. Bond trading has been spurred by the surprise U.K. referendum to leave the European Union, divergent views on the direction of central-bank rates, and changes in money-market regulations.

Read also: Barclays Plc starts to attract rational investors; smart #EPL deal shows why

Investment banking fees jumped 29 percent, while equities trading revenue climbed 11 percent to 461 million pounds.

Barclays “gained quite a bit of market share, particularly in the United States, so we feel good about our investment bank performance,” Staley said in a Bloomberg Television interview with Manus Cranny.

Analysts expected Barclays’s investment bank division to benefit from the pound’s 2.6 percent drop against the dollar in the quarter, since a large portion of its revenue comes from the U.S. The bank changed its expense target for 2016 to 13 billion pounds from 12.8 billion pounds to reflect the currency move.

PPI Charge

The bank’s common equity Tier 1 ratio, a measure of its capital strength, remained at 11.6 percent. The company’s return on tangible equity in the quarter was 3.6 percent.

Read also: New stock added to the Biznews share portfolio – Barclays Plc

Barclays’s international unit, which includes the investment bank and other operations outside the U.K., made a profit of 1.09 billion pounds, surpassing the 979 million-pound average estimate from a survey of nine analysts conducted by the bank.

Barclays U.K., the ringfenced British consumer bank, made a profit of 675 million pounds, excluding a one-time charge, topping the average 665 million-pound estimate. The division was created to comply with a impending British law requiring the separation of consumer and investment-banking arms.

The bank took a further 600 million-pound provision to compensate customers for improperly sold payment-protection insurance, bringing its total to 8.4 billion pounds. Investec Plc analyst Ian Gordon expected a 500 million-pound charge in the quarter. Staley said the bank is now fully reserved given what it knows at present.

British lenders had hoped they’d taken their final charges for the PPI saga, by far the industry’s most costly scandal, but in June the Financial Conduct Authority set a deadline for compensation claims a year later than banks wanted, mid-2019. Lloyds Banking Group Plc took a 1 billion-pound provision when it reported results on Wednesday.

To revive the bank’s share price, Staley and his new management team are stripping out costs and focusing on the U.K and U.S. The CEO has pulled the investment bank out of seven countries in Asia, is selling down the lender’s century-old African business and non-core assets and has eliminated about 14,500 jobs. Barclays is also weighing how to adapt after the U.K. voted to leave the European Union, which could leave London bankers shut out of the bloc’s single market.

Staley said in the interview that he expects to remove another 3,500 positions by year-end and a hiring freeze he imposed remains in place.

The firm’s non-core division, which houses the bank’s unwanted businesses and securities, posted a 94 million-pound loss, smaller than most analysts estimated. Risk-weighted assets in the unit were cut by 3 billion pounds in the quarter to 44 billion pounds. Harry Harrison, the head of the bad bank, is attempting to cut risk weighted assets to about 20 billion pounds by 2017. In March, Staley cut the firm’s dividend in half to give the bank more capital to absorb losses from a quicker rundown of the non-core unit.

Visited 46 times, 1 visit(s) today