- Revenue better across all divisions
- Investment bank outperforms US rivals
- ‘No signs of distress’ among UK customers
With all the upheaval in the banking industry in the last couple of months, shareholders in Barclays (BARC) were treated to some rare good news with the company’s first quarter earnings update.
The shares gained 7p or almost 5% to 161p, propelling them to the top of the FTSE 100 leader board.
WHY ARE BARCLAYS SHARES RALLYING?
It’s not often that a UK bank beats forecasts across the board, or that it outshines its US peers, but Barclays has done both in the first three months of this year.
Total income increased to £7.24 billion from £6.50 billion, comfortably beating the consensus forecast of £6.79 billion thanks to higher net interest income at the UK retail bank, growth in U.S. credit card balances and a rise in client assets and liabilities in the Private Bank.
The group ended the quarter with a Common Equity Tier 1 ratio – considered a key measure of its balance-sheet strength – of 13.6% against a forecast of 13.5%, and a return of tangible equity of 15% which is highly respectable.
As well as strong returns in the core bank, Barclays’ investment bank delivered an impressive performance in fixed-income trading, posting revenues above analysts’ forecasts and well ahead of Wall Street giants Goldman Sachs (GS:NYSE) and JPMorgan (JPM:NYSE).
Chief executive C. S. Venkatakrishnan commented: ‘This is a strong first quarter, all three businesses have performed well with high quality income growth and double-digit returns.
‘The momentum across the group allows us to maintain a robust capital position, deliver attractive returns to shareholders, and support our customers and clients through an uncertain economic environment.’
Pre-tax profit for the first quarter was £2.60 billion compared with £2.2 billion a year earlier and a company-compiled consensus of £2.23 billion.
Asked about the impact of the turmoil of the last few months the chief executive said the issues with US banks were ‘not systemic’, while UK banks were ‘more insulated’ and Barclays itself had seen an increase of around £10 billion in deposits during the quarter, mainly from companies.
In terms of provisions, the increase in the US credit card portfolio automatically led to a rise in charges for expected losses, but in the UK the bank had seen no signs of a rise in delinquencies so far, the chief executive said in an interview with Bloomberg.
‘Consumers are economizing and spending less, but they are managing their balance sheets and we are not seeing any signs of distress.’
‘SCOPE FOR UPGRADES’
‘Barclays is doing what a bank should do by benefiting from a higher interest rate environment, boosting its net interest margin by increasing the amount it charges on loans by more than the amount it pays out on deposits’, commented AJ Bell investment director Russ Mould.
‘At the same time its investment bank, whose place in the group has been the subject of considerable shareholder debate and pressure, is performing decently given a difficult backdrop for that industry.’
Jefferies financials analyst Joseph Dickerson observed there was ‘not a lot to nitpick in a strong first quarter for Barclays’ with revenue ahead of estimates in all business segments and even the cost-to-income ratio coming in better than forecast.
‘At first blush we see some scope for consensus upgrades given UK banking and Cards were better, not to mention follow-through from first-quarter strength in FICC (fixed income, currencies and commodities) trading’, added Dickerson.
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DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Ian Conway) and the editor (Martin Gamble) own shares in AJ Bell.
