Luckless Barclays takes regulatory hit

It was very much a case of looking on the bright side of life for Barclays Bank (BARC), even as the over-issuance of tradeable securities in the US continues to dent its already battered reputation, as well as profits, with the half drawing to a sombre close for the hybrid investment bank/mortgage player. The scandal, which appears to have been a straightforward clerical error, knocked about £600mn of attributable profit from the first-half results, with the group's litigation costs alone now a cool £400mn.  

The bright side, such as it was, is that Barclays' sprawling business model, encompassing UK mortgages and flashy Wall Street investment banking, again managed to navigate some of the worst effects of the first-half downturn in investment banking fees. These were down by 31 per cent to £1.2bn as deals and mergers all but dried up in its core markets. The UK banking arm held up particularly well with a combination of cost savings, interest rate rises and an improved net interest margin of 2.67 per cent leading to a much better cost-to-income ratio of 62 per cent – down by five percentage points. The awkward comparisons were mainly down to a prior release of capital reserves set aside to cover potential pandemic losses that did not materialise. In addition, management also plans a £500mn share buyback.

The market seems to be sceptical of whether Barclays can stick to its return on equity target of over 10 per cent, mainly because of its accident-prone ability to undermine its earnings. That is reflected in a lowly forward price/earnings ratio of barely six times consensus forecasts for this year. That tells its own story. Hold.

Last IC View: Hold, 197, 23 Feb 2022