26th Oct 2022 10:50
(Alliance News) - Barclays PLC's third quarter was saved by its investment bank, but it also noted its domestic business recorded an impressive net interest margin rise.
Shares in the FTSE 100-listed lender were down 1.1% in London on Wednesday mid-morning at 148.56 pence each.
"Barclays has a lot of strings to its bow, making it more resilient in times of economic difficulty because it's not reliant on one income stream," Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said.
"However, that's not to say the group's immune from hardship. Consumer activity in the UK fell in the third quarter, impacting income. Despite there being higher card transaction-based revenues because of improved spending, borrowers are paying down their debt and taking on reduced loans as the economy weakens."
Lund-Yates noted this hurts Barclays ability to earn interest, but this was trumped by rising interest rates - pushing its net interest margins higher - and resulting in a "resilient showing overall".
The London-based blue chip lender reported pretax profit in the three months to September 30 of GBP1.97 billion, up 5.9% from GBP1.86 billion a year prior.
Barclays booked a credit impairment charge of GBP381 million in the quarter, widened from GBP120 million the year before. For the first nine months of the year, the bank was hit by a credit impairment charge of GBP722 million, as opposed to benefiting from a GBP622 million credit release a year ago.
interactive investor analyst Richard Hunter said: "On the whole, Barclays has had a strong quarter which has offset some of the damage caused earlier in the year by the over-issuance of securities in the US, which is now largely recognised and therefore contained."
Total income rose 8.8% to GBP5.95 billion from GBP5.47 billion, as income at its Barclays UK unit increased by 17% to GBP1.92 billion from GBP1.64 billion while Barclays International income was 3.3% higher at GBP4.07 billion from GBP3.94 billion.
In the quarter, net interest income surged 58% to GBP3.07 billion from GBP1.94 billion, but net fee, commission & other income fell 18% to GBP2.88 billion from GBP3.53 billion.
Within its Barclays International unit, its Corporate & Investment Bank business saw Global Markets income rise 15% to GBP1.79 billion from GBP1.56 billion, with Fixed Income, Currencies & Commodities growing 93% to GBP1.55 billion from GBP803 million, but Equities fell 68% to GBP246 million from GBP757 million.
HL's Lund-Yates said this is company's "real superpower".
"The group's reduced reliance on traditional banking as well as lower exposure than some to the tricky Asian economy, is why Barclays' impairment charges, although massively increased, are substantially lower than some peers. That's a trend likely to continue and should be seen as a real strength," she added.
Despite the Markets income jump, Corporate & Investment Bank income fell 10% as Investment Banking fees dropped 45% to GBP533 million from GBP971 million. Corporate fees suffered a 17% drop to GBP496 million from GBP598 million.
AJ Bell analyst Laith Khalaf explained: "The economic slowdown and stock market turmoil also means the investment banking arm is struggling as big corporate deals are on the back-burner for the time being."
In Barclays UK, total income was up 17% to GBP1.92 billion from GBP1.64 billion, aided by its net interest margin improving to 3.01% from 2.49%.
Within Barclays UK, Personal Banking income was up 22% to GBP1.21 billion from GBP990 million, Barclaycard Consumer UK slipped 3% to GBP283 million from GBP293 million and Business Banking was up 19% to GBP421 million from GBP355 million.
Barclays's group cost-to-income ratio improved to 60% from 65%. The bank targets to further lower the ratio.
Operating costs widened by 14% to GBP3.94 billion from GBP3.45 billion. It set aside GBP500 million in the third quarter to help with its over-issuance of securities in the US.
AJ Bell's Khalaf said: "Barclays continues to wear the recent US structured products trading debacle like a heavy weight around its neck, and this drags down an otherwise fairly positive set of third quarter numbers."
For 2022, Barclays expects total operating expenses to widen by 16% to GBP16.7 billion from GBP14.44 billion in 2021.
ii's Hunter added: "The strength of the quarter repairs some of the dents from the year, but the outlook remains inevitably cloudy. The ongoing impacts of inflation, a possible global recession depending largely on the aggression of central bank rate rises and the deterioration of real incomes all have the potential to upset the apple cart further.
"The US over-issuance debacle could prompt some governance concerns, and the coming months are likely to provide further stern challenges."
Lund-Yates said the bank "cannot afford another slip-up" without questions about its governance and risk controls becoming "a more substantial downturn".
"The recent over-issuance of US securities is only the latest blunder and questions have been raised about increased risk because of weak oversight at the firm," she added.
Looking ahead, the bank said: "Diversified income streams position the group well for the current economic and market environment including rising interest rates".
Barclays is targeting a return of tangible equity of more than 10% in 2022, compared to 13.4% in 2021. It ended the quarter with a Common Equity Tier 1 ratio of 13.8% and for 2022 aims for a CET1 ratio of 13% to 14%, compared to 15.1% in 2021.
The bank ended the quarter with a loan book of GBP413.7 billion, up 14% from GBP361.5 billion at the start of the year and up 17% from GBP353.0 billion at the same point the year before.
Chief Executive Coimbatore Venkatakrishnan added: "We are ready to provide support for customers and clients facing an uncertain economic environment and higher cost pressures. Whether helping retail customers to manage their finances or corporate clients navigate markets volatility, we will continue to be focused on meeting their needs."
By Paul McGowan; [email protected]
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