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Barclays trading gains offset by impairment surge

The lender said that while bad debt charges will improve during the second half, the rise in investment banking income will also diminish
July 29, 2020

Like its US counterparts, Barclays’ (BARC) pre-tax profits were cushioned from a surge in provisions for toxic debts by the jump in income from its investment banking operations during the first-half. The second quarter rally in equity and fixed income investment markets led to a “standout” performance from the markets business and pushed corporate and investment banking income up almost a third.

IC TIP: Hold at 107p

However, the lender could not escape the darker economic outlook, which resulted in a further £1.6bn in credit impairment charges during the second quarter. While bad debt charges are expected to remain higher than recent years, management expects them to improve during the second half of the year. Yet it also anticipates that the exceptional boost to trading income enjoyed in recent months will abate. 

Meanwhile, even leaving impairments aside, the prognosis for the consumer banking operations does not look good. A reduction in the base rate to an historic low, together with a decline in consumer credit card and overdraft lending, caused income for Barclays UK to fall 11 per cent during the first-half.  

The consensus forecast for net tangible assets at the end of December is 278p a share, rising to 287p the same time the following year.

BARCLAYS (BARC)   
ORD PRICE:107pMARKET VALUE:£ 18.6bn
TOUCH:106.5-107p12-MONTH HIGH:193pLOW: 73p
DIVIDEND YIELD:NILPE RATIO:17
NET ASSET VALUE: 187pLEVERAGE:22.4
Half-year to 30 JunTotal operating income (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201910.93.0112.13
202011.61.274.00
% change+6-58-67-
Ex-div:na   
Payment:na