Tough times for Barclays (BARC). It has given up this year's share price gains, and what was most concerning about its third-quarter figures were the extra expected costs and reduced shareholder returns from the regulatory-driven restructure of the bank. This is going to cost the bank £1bn over the life of the programme, £100m of which has already been spent. Together with tax changes, the restructuring has also brought targets for 2016 core return on equity down by 1 percentage point to 11 per cent.
Compared with the second quarter, revenue from the investment bank was down across credit, equities and macro services. But on a year-on-year basis, both profits and revenue were up in the division. In fact, it was the non-core businesses that dragged on performance, providing a £19m net operating expense, compared with net operating income of £353m in the third quarter (Q3) of 2014.
Analysts speculated that chopping risk-weighted assets in the investment bank would improve capital ratios, and open the door for cash returns or buybacks. All eyes are on new chief executive Jes Staley, who takes up his post on 1 December - and where he will swing the axe.
Investec Securities says…
Buy. Antony Jenkins bequeathed consensus-busting second-quarter results when he was axed earlier this year. In 2012, Bob Diamond's departing gift was a set of numbers that "shot the lights out". As executive chairman McFarlane shunts himself aside to make way for Jes Staley's arrival as chief executive, we see enough in the detail of today's announcement to remain moderately positive. We don't share chairman McFarlane's dream of a revenue-led recovery, but we continue to see a perfectly credible cost-led path to return on tangible equity of more than 10 per cent by 2018. However, we think the sellside may have got ahead of itself in terms of the pace of delivery. We envisage respective profits and EPS of £4.47bn and 10.8p for the December year-end, against £2.26bn and an earnings loss of 0.7p a share in 2014.
Cenkos Securities says…
Hold. Decent results, especially at Barclaycard - but the focus will remain on what the chairman and new chief executive will do with the investment bank. Cost control remains the key challenge. Our guess is that credit and macro account for the bulk of that cost base - and also the bulk of the risk-weighted assets consumed by the investment bank. Management should focus its chopping on businesses with heavy costs and risk-weighted assets (RWA). The reward for this would be a significant reduction in both the operating expenses and RWAs in the investment bank - with a relatively smaller reduction in income and improved, more sustainable profitability.
