Analyst reactions to Barclays second quarter earnings: “This is a perplexing set of results”

by Jonathan Adams

Analysts perplexed at Barclays performance in the second quarter

The sale of Africa business of Barclays and the PPI has caused Barclays slid to a £1.4bn attributable loss. The bank has significantly downgraded its Africa business and currently has just 15% stake in the operations. The bank now intends to concentrate on its core strategy of transatlantic market and the bank’s operations will be managed from the US and the UK. The group also faces PPI mis-selling for which for which it will compensate its customers. The bank has reported half-year pre-tax profit of £2.3bn which does not include the impact of the Africa sale. The figures fall below analyst expectations of £2.7bn.

“This is a perplexing set of results, the bad bank is getting better, but the good bank is getting worse,”

said Laith Khalaf, senior analyst at Hargreaves Lansdown.

However, these are only some of the many problems facing the banking group. The other problems that the bank faces include allegations of misconduct and trouble with the Financial Conduct Authority and its problems with the US Department of Justice. Among them, the misconduct by the bank concerns its US office where Staley has been accused of trying to identify a whistle blower.

“The sale of Barclays Africa and more PPI costs are the main culprits for the bank’s woes so far in 2017. More litigation problems are waiting in the wings, with the bank in trouble with the FCA, the SFO and the US Department of Justice, a formidable triumvirate of adversaries…

“The bank’s restructuring is now complete, which is a significant milestone, but now Barclays is in the shape envisaged by management, the pressure is on to perform.”

“To that end its figures for 2017 are far from convincing, with the core bank floundering, and progress actually coming from the non-core. The market will be hoping for a bit more positive news in the remainder of the year, though conduct issues may well overshadow the bank’s performance.”

Buying opportunity
Gary Greenwood at Shore Capital acknowledged the results were disappointing, but suggested any subsequent fall in share price could present a

“buying opportunity given the stock is trading at a discount to book value”.

Connor Campbell, financial analyst at SpreadEx, said:

“The bank revealed a chunky 13 per cent jump in half year pre-tax profit to £2.34bn, while signalling the end of its corporate restructuring programme. These gains were soured somewhat by the news that Barclays, like Lloyds earlier in the week, had to set aside a further £700m to cover PPI claims, however it wasn’t enough to prevent the bank posting a sector-defying two per cent rise after the bell.”

Rob Noble, of RBC Capital Markets, said:

 “[Barclays profits were] seven per cent lower than consensus expectations (adjusting for PPI, Vocalink, and sale of Japanese JV). However, core bank is in line with expectations, with the miss driven by greater than expected non-core losses. This is due to faster run-down of [risk-weighted assets] in non-core (which ended at £23bn compared to £25bn guidance). The loss in non-core in the first half at £647m is in line with guidance of £1bn loss in 2017 skewed towards the first half.”

Staley’s silence on Qatar and whistleblowing
Panmure Gordon’s David Buik noted: Chief executive Jes Staley said

“that restructuring was over and that Barclays would be spearheading its European banking from Dublin, but London remained in pole position as Europe’s leading financial centre. He made no comment about the Qatar court case or his outstanding ‘whistleblowing’ issues with FCA. Barclays’ shares are up 43 per cent on the year, though down 12 per cent since February 2017.”

City Index’s Ken Odeluga said:

“The £1.2bn loss in the first half is indeed now a thing of the past, as is the additional £1.1bn impairment from the [Africa] sale. There’s no question either that the [Africa] exit has progressed satisfactorily – even a touch faster than expected considering ongoing economic and political uncertainty in South Africa.”

On the other hand, Barclays’ flagging of an 18-month window for regulatory deconsolidation opens the door to further impairments, albeit a rise of 26 basis points in the regulatory capital buffer that the group forecasts during that time and lack of Common Equity Tier 1 impact in the first half are an offsetting positive.

This article is for information purposes only.
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