- Investment banking business disappoints
- Lowered guidance for net interest margin
The market was less than impressed with the third-quarter trading update for Barclays (BARC). It contains unexpected surprises as the full-service bank struggled to keep the group’s overall performance in balance with its buoyant UK lending arm. The fundamental lack of deals for its investment banking business, and therefore fees, continues to weigh heavily on the group, without the bond trading bonanza that rescued the last quarter of 2022.
The contrast at the group level with what the UK lending bank is achieving is marked. Overall, in the third quarter Barclays' generated a return on tangible equity of 11 per cent, down a full 1.5 percentage points compared with this time last year. That meant that third quarter pre-tax profits were lower at £1.9bn.
The only real bright spot was the performance of Barclays UK, which comprises its high street business and the Woolwich lending brand. Tangible returns here topped 21 per cent for the quarter, even with lower earnings of £1.8bn, which unfortunately was not enough to shift the dial for the rest of the group. The total credit impairment of £0.4bn was higher, but within the range that analysts had forecast, while costs were marginally lower at £3.9bn as lower misconduct charges helped to keep these under control.
Management also lowered its guidance for net interest margin, which is now expected to be in the range 3.05 to 3.10 per cent.
Overall, the gloom around Barclays is refusing to lift under its now not-so-new chief executive. The shares were marked down by up to 9 per cent in the aftermath of the trading update, meaning they have now reached a new price/earnings low at 4 times, with a price to tangible book value of just 0.4. Disappointing.
Last IC view: Hold,157p, 27 Jul 2023
