Barclays (BARC) third-quarter performance will likely add fuel to those that argued for its shift towards a retail-only banking group. Income from its investment banking operations reduced by almost a fifth, largely due to a weaker performance from its markets business, which has paid the price of continued low volatility during the period. Elsewhere in its international division, the consumer, cards and payments business suffered an uptick in impairments of more than a third. The bottom line was a pre-tax profit that, despite being up almost a third year-on-year, missed consensus forecasts by almost a quarter. Shares closed the day 8 per cent down on the back of this update.
That profit growth was almost entirely due to lower litigation and conduct costs, which came in at just £81m, compared with £741m over the equivalent period in 2016. The closure of its non-core operations in July also helped bring down expenses, just as well because, while stable, the performance of its UK operations was slightly underwhelming. Net interest income was flat, despite an uptick in lending, which management attributed to the continued strain of low interest rates.
Structurally there has been progress. The disposal of its majority stake in Barclays Africa reduced risk-weighted assets by £28.5bn, and helped boost its common tier one equity ratio – calculated as a proportion of risk-weighted assets – to 13.1 per cent, up from 11.6 per cent a year ago. Management has now turned its attention towards driving returns, outlining a target of a return on tangible equity – excluding litigation and conduct costs – north of 10 per cent by 2020 and 9 per cent by 2019. That’s based on a capital ratio of 13 per cent. It is also aiming to reduce operating expenses to between £13.6bn and £13.9bn by 2019.
