A sign hangs over an entrance to a branch of Barclays Plc bank in the City of London, UK
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LONDON (Reuters) – Barclays on Wednesday reported an unexpected increase in third-quarter profits on the back of strong trading earnings, despite an ongoing drag from a costly trade error in the US.
The UK lender posted a net profit attributable to shareholders of £1.512 billion ($1.73 billion), above analyst consensus expectations of £1.152 billion and up from a revised £1.374 billion for the same period last year.
“We delivered another quarter of strong returns, delivering revenue growth in each of our three businesses, with group income up 17% to £6.4 billion,” Barclays CEO CS Venkatakrishnan said in a statement.
“Our performance in FICC (fixed income, currencies and commodities) was particularly strong and we continued to build momentum in our consumer businesses in the UK and US”
The group continued to fall victim to excessive issuance of securities in the US, which has resulted in £996 million in lawsuits and litigation costs this year.
The largest upward contributor to the bank’s performance came from its FICC trading business (fixed income, currencies and commodities), where third quarter revenues grew 93% year-on-year to £1,546 billion.
The bank also benefited from an increase in the net interest margin – the difference between what a bank earns in interest on loans and pays on deposits – which rose from 2.53% to 2.78% as the group benefited from higher interest rates.
The Common Equity Tier 1 Capital Ratio (CET1) was 13.8%, compared to 15.4% at the end of the third quarter of 2021 and 13.6% in the previous quarter. Group revenue including the impact of the over-issue of securities was £6 billion, up from £5.5 billion for the same period last year. Return on tangible equity (RoTE) was 12.5%, compared to 11.4% in the third quarter of 2021. Loan loss charges rose to £381 million, up from £120 million last year, with the bank cites a “deteriorating macroeconomic outlook”.
Barclays shares kick off Wednesday’s trading session nearly 20% lower than in the year.
Strong results, but caution is advised
John Moore, senior investment manager at RBC Brewin Dolphin, said that despite the strong performance, with Barclays benefiting from robust fixed income trading and market volatility, along with an increase in net interest income, there is “a warning sign for today’s statement and little in the way of news in terms of shareholder returns – perhaps in response to the recently mooted prospect of a windfall for banks.”
“Looking ahead, the uncertain economic backdrop is likely to put a brake on some of the Barclays markets, particularly in the credit card and investment banking divisions, with the outlook for corporate actions – such as capital increases – more difficult,” Moore said.
“Despite past mistakes that still plague the results, Barclays remains the best positioned of the major UK banks with a more diversified income stream – but there are still challenges ahead.”
Sophie Lund-Yates, principal equity analyst at Hargreaves Lansdown, noted that Barclays’ diversified income stream makes it more resilient than many other competitors in periods of economic downturn, but suggested there is still a “grey cloud” of governance concerns over the bank. hangs.
“The recent over-issuance of US securities is just the latest gaffe and questions have been raised about increased risk due to weak oversight at the company,” she said.
“One thing is certain, Barclays cannot afford another misstep without questions and concerns turning into a more substantial downturn.”