ISA and SIPP holders hanging on to Barclays stock have received a boost from a strong third quarter report that saw the bank’s trading unit post a surge in returns that has seen overall net profits leap around 40% on last year. Analyst forecasts had estimated Barclays to record a net profit of £784 million on total revenue of £5.2 billion.
However, despite disappointments elsewhere, the trading unit’s powerful quarter, which took advantage of recent market volatility, saw an actual net profit of £1 billion (£1.5 billion before tax) despite revenues coming in lower than estimates at £5.13 billion. Over the same third quarter of 2017, Barclays net profit was £583 million, marking an improvement of over 70%.
This morning Barclays’ share price opened 2.2% higher than where it had started Tuesday morning at 166.86 pence. Despite an early morning drop back down to 164.42 pence as the London Stock Exchange opened for business, the Barclays share price has subsequently bounced back to around 167.5 pence. The gains will come as a relief to those investing online in Barclays shares, which have seen their value drop by over 20% since April this year as the financial sector generally suffered internationally.
Volatile markets over the past few months have provided an opportunity for traders which Barclays have taken full advantage of. Trading revenues generated by positions on equities were particularly strong, rising by over 33% on last year’s showing to £471 million. Fixed income trading yielded £688 million in revenues, a 9.7% improvement on last year.
While Barclays’ trading unit and the amount of capital it works with may be considerably less in comparison to the biggest investment banks such as JPMorgan and Goldman Sachs, its traders’ results have compared favourably. Chief executive Jes Stanley praised the trading floor’s work against the context of bigger peers, stating:
“During the third quarter our corporate and investment bank outperformed peers again in markets, with a 19 per cent increase in income.”
The investment banking arms of the UK’s biggest banks rightfully took much of the blame for putting banks at risk of collapse during the 2008 international financial crisis. Aggressive, and ultimately ill-judged, exposure to complex derivatives markets such the U.S. sub-prime mortgages. While, unlike British peers RBS, Lloyds and HBOS, Barclays did not require to be bailed out by the UK government, instead raising investment in the Middle East, it has also been forced to since separate capital connections between its retail and investment banking operations.
Now, however, it is Barclays’ investment banking unit that is picking up the slack from less impressive retail and business facing operations. Underperformance of the group’s advisory service and corporate lending, with the caveat pulling back from the latter has been an intentional strategy, saw their quarter revenues drop 15% and 29% respectively on last year.
Britain’s big banks will hope that the next time the economy hits a period of decline their investment banking operations will take advantage of the volatility to make a positive contribution rather than seeing history repeating and irresponsible trading compounding a difficult environment.