Against a decidedly murky economic backdrop, third quarter results for Barclays (BARC) were better than expected. If investors strip out litigation and conduct charges – as they have been asked to for a decade – then pre-tax profits came to £1.81bn, leading to adjusted earnings of 7.2p per share.
That was also equivalent to a 10.2 per cent return on tangible equity, ahead of a group-wide target of more than nine per cent for the current year. Rising income from the investment bank, reasonable cost control and favourable currency movements offset a rise in credit impairment charges and investments in digital products.
Even the £1.4bn redress for payment protection insurance (PPI) claims was below the upper range flagged in September amid a pre-deadline claims deluge. Add this extra provision back in, and an otherwise declining cost-to-income ratio would have spiked to 88 per cent, while the quarterly return on equity would have turned negative.
Unfortunately, this broad stabilisation has arrived as “global macroeconomic uncertainty and the current low interest rate environment” are starting to wear on management's belief that a 10 per cent return on average tangible equity is achievable in 2020.
