- Shares tumble on 'underwhelming' full-year update
- Retail and investment bank both miss forecasts
- Share buyback not enough to lift sentiment
Shares in high-street bank Barclays (BARC), typically the first of the UK lenders to report its earnings, slumped as much as 9% to 171p, their worst performance in over 12 months, after the bank’s latest results comprehensively missed market expectations.
The fall-out spread to rivals Lloyds (LLOY), down 2% to 52.5p, and NatWest Group (NWG), which reports earnings this Friday.
WHY DID EARNINGS DISAPPOINT?
While chief executive C.S. Venkatakrishnan was upbeat about the bank’s progress in 2022, with group income up 14% and return on tangible equity over 10%, analysts and investors were quick to disagree.
The firm’s fourth quarter income of £5.8 billion was below the consensus forecast of £6.1 billion due to a weaker-than-expected net interest margin in the retail bank and a lower-than-expected return from the investment bank.
This meant full year pre-tax profits were £7 billion compared with estimates of £7.2 billion and £8.2 billion in 2021, while return on equity was just 10.4% compared with 13.1% a year earlier.
The one aspect of the results which did meet market expectations was charges for expected credit losses, which increased to £500 million in the final quarter due to the bank’s deteriorating macroeconomic forecast for the UK taking full-year provisions to £1.2 billion.
Even the share buyback of up to £500 million was disappointing as the market had been expecting a figure closer to £700 million.
EXPERT VIEWS
‘Barclays continues to benefit from rising interest rates, but so far this benefit has been more than offset by normalising impairment charges and investment banking revenues’, said Rob Murphy at Edison.
‘In light of the ongoing worries on inflation and interest rates and the impact on the economy, investors are likely to continue to take a cautious stance on bank shares in the near term despite low valuations across the sector.’
Joseph Dickerson of Jefferies pointed out that not only were last year’s results and the buyback ‘underwhelming’, but the outlook for 2023 was nothing to write home about.
The bank’s guidance suggests ‘marginally better credit costs’ but a slightly higher cost-to-income ratio than expected, meaning investors have to hope the investment bank does better than it did last year.
