Despite cautioning investors on the challenges posed by the continuingly low interest rate-environment and economic uncertainty, both Brexit-related and globally, Barclays has seen its share price boosted by 1% today after a generally positive third quarter report. The highlight for markets was the fact that the group’s profits came in ahead of forecasts as well as representing a strong level of growth compared to last year’s performance.
Before tax and budgeting for PPI compensation for miss-sold loans, still a major drain on finances, Barclays recorded a profit of £1.8 billion. Analyst expectations had been for £1.54 billion and the same period in 2018 yielded £1.56 billion. Revenues were also up 4% to £5.54 billion.
PPI provisions were announced at £1.4 billion, bang in the middle of the expected £1.2 billion to £1.6 billion range, with chief executive Jess Staley commenting that the flood of claims that had come in over the period preceding the 29th August deadline had caught the bank off guard. A last-minute rush had been expected but not quite to the extent of what transpired.
The biggest success over the third quarter, ultimately boosting profits beyond forecasts, was the performance of Barclay’s investment banking division. Smartly playing recent market volatility managed to bump revenues up by 17% on 2018’s third quarter to £2.6 billion.
The unit had been under pressure for its recent performance with Edward Bramson, a major shareholder and activist investor, pushing for it to be scaled back. The positive result is a vindication of the decision for Mr Staley to take charge as a result of a restructuring and overhaul of the unit’s management. Mr Staley confidently asserted that with the unit’s income from fees reaching a record level for the quarter, its performance had proven that it can compete with peers on Wall Street. Europe’s major banks have recently trended towards shrinking their investment banking units – a move seen as tacit acceptance that they have been outmanoeuvred by the trading expertise of their U.S. rivals.
The bank maintained its 2019 target for a 9% return on equity despite highlighting a tough environment caused by low interest rates and macroeconomic uncertainty. Barclays also confirmed that its cost cutting targets, taking overall expenses to below £13.6 billion, remain on track and unchanged.
The other announcement of note was confirmation that Barclays has agreed with regulators to reduce the percentage of its risk weighted assets to a level similar to that of other British banks. The target core capital ratio has, with that in mind, been bumped up to 13.5% from its previous level of 13.4%.