- Net interest income falls
- Investment bank slips
- Buyback target confirmed
High-street lender Barclays (BARC) reported a drop in first-quarter pre-tax profit due to a combination of weaker net interest income and lower income from its investment bank, but the results were slightly ahead of market expectations.
The shares gained as much as 9p or 4.5% to 200p, their highest level in over a year, as the firm stuck to its forecasts for return on equity and capital returns to shareholders.
INCOME LOWER AS EXPECTED
Group first-quarter income was 4% lower than the previous year at £6.95 billion due to what the bank referred to as ‘adverse product dynamics in UK deposits and mortgages’ and lower fixed-income and commodity revenues from its investment bank.
The UK retail business generated net interest income of £1.55 billion, a drop of 4% driven by a lower net interest margin as customers borrowed less and deposit-holders shifted their money into higher-earning accounts, while net fee and commission income fell 19% to £277 million meaning total income for the division was down 7% at £1.83 billion.
Bad loan charges were minimal at £58 million against £113 million last year, ‘consistent with low delinquencies in UK cards, high quality mortgage lending portfolio and the improved macroeconomic outlook’, while on the topic of car loans the bank said its Clydesdale financial services unit was ‘co-operating fully’ with the FCA (Financial Conduct Authority).
Investment banking income was 7% lower at £3.33 billion driven by a 19% drop in net trading income to just under £2 billion as growth in equities, derivatives, cash and prime financing were more than offset by lower client activity in its fixed-income and commodities unit.
Chief executive C.S. Venkatakrishnan was keen to draw attention to the bank’s success in raising its return on tangible equity to above its medium-term 2026 target of 12% and pointed to the sale of its Italian mortgage book and reinvestment in higher-returning UK assets, including the recent acquisition of Tesco Bank, as proof the firm was using its capital wisely.
He also reiterated the bank’s medium-term target of returning at least £10 billion to shareholders, or more than one third of its current market cap, between 2024 and 2026 through dividends and buybacks with an emphasis on the latter.
EXPERT VIEWS
‘Barclays has kicked off the year with a promising start, adhering to the financial roadmap outlined at its full year 2023 results’, commented Will Howlett, financials analyst at Quilter Cheviot.
‘The reiteration of profitability targets, aiming for a return on tangible equity of over 10% in 2024 and over 12% in 2026, reflects a consistency in Barclays’ ambitions despite previous setbacks, and the pledge to return at least £10 billion to shareholders over the next three years – representing over 35% of the market cap – is a testament to its strategic focus and shareholder-friendly approach’, added Howlett.
Jefferies banking expert Joseph Dickerson said Barclays’ overall message for the quarter was it is ‘delivering on UK retail performance’ with little change in the outlook for credit quality or costs while the investment bank is seeing a somewhat soft markets backdrop in certain areas.
