21st Oct 2022 20:04
(Alliance News) - Barclays PLC will issue its third quarter figures next Wednesday, with investors keen to hear from the lender amid the increased political volatility the UK which has set the country on course for a recession and decades-high inflation.
"Barclays faces an uncertain outlook given the volatility in the market," Matt Weller, global head of research at FOREX.com and City Index, said. "Readers will recall the big spike in long-term gilt yields and the collapse in the value of sterling in late September, which may cast a pall over this quarter's results."
Weller said the focus will be on the bank's expected credit losses, which he forecasts to hit GBP363 million - increased sharply from GBP120 million a year prior - as it gears up for the UK to head into a recession, so expects a rise in bad loans.
He continued: "While the year-agos figure will represent the last tough comparison, that will be little consolation for traders until next quarter’s earnings. Notably, Jefferies estimated that the UK government’s energy-price cap will reduce defaults on UK consumer loans, potentially limiting the increase in Barclays' ECL."
Michael Hewson, chief market analyst at CMC Markets, said Barclay's first-half numbers were "underwhelming". He pointed to the bank having to pony up GBP600 million to settle matters related to an overselling of financial instruments in the US.
Barclays in March admitted it sold more products to investors than it was allowed to.
The London-based bank explained that securities offered and sold under its US shelf registration statement for an approximately one-year period had exceeded a registered amount. This, the bank explained at the time, gave the purchasers of the affected securities a right of rescission.
"On the wider numbers investment bank revenue for Q2 came in at just over GBP4 billion, beating expectations of GBP3.7 billion, with FICC seeing a modest slowdown from Q1 to GBP1.5 billion," Hewson continued. "Its equity and debt capital markets division saw a big drop in revenues over the first half, although advisory performed slightly better in Q2, after a poor Q1."
A strong investment bank performance, Weller noted, could "insulate" Barclays from any fallout in the UK, unlike its high-street peers Lloyds Banking Group PLC and NatWest Group PLC.
"In addition, the ongoing across-the-board weakness in the pound should boost Barclays’ international profits in sterling terms," Weller added.
AJ Bell investment director Russ Mould feels that it might be too soon for the UK’s big banks to show any fallout from Kwasi Kwarteng’s mini-budget on their profit and loss accounts or balance sheets - as the short-lived chancellor gave his statement on September 23, with just a week to go before the quarter end.
"Nevertheless, analysts and shareholders will look to see if there are any tell-tale signs of an economic slowdown in the UK when they report their third-quarter profits," he continued. "Nerves over rising interest rates, government bond yields and soaring mortgage costs on both sides of the Atlantic as well as weak GDP figures explain this caution, which to some degree looks justified by the third-quarter results from the US Big Four."
Mould noted the big US banks showed less sign of economic stress than analysts expected as loan growth accelerated, net interest margins expanded, and dividends remained generous. All of which could bode well for their UK counterparts.
"Rising interest rates, bond yields, credit spreads and mortgage costs are yet to manifest themselves into financial difficulties for borrowers and could at the same time be helping net interest margins at the lenders," Mould added.
"However, loan provisions, any fresh conduct and litigation problems and any weakness at investment banking operations could undo some of the good here and investors clearly remain sceptical about the UK’s biggest banks in particular."
Shares in Barclays closed 0.9% lower in London on Friday at 143.97 pence each, and is down a steep 27% in 2022.
By Paul McGowan; [email protected]
Copyright 2022 Alliance News Limited. All Rights Reserved.
Related Shares:
BarclaysLloydsNatwest