Interactive Investor

Barclays beats profit expectations

27th April 2023 09:23

by Richard Hunter from interactive investor

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An unchanged outlook from the FTSE 100 lender will give some comfort to embattled investors, writes head of markets Richard Hunter.

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​​​​​There can be little cause for complaint on a set of numbers which have both grown and beaten expectations virtually across the board.

The diversity of the group’s businesses is a boon to Barclays (LSE:BARC) through the various economic cycles and, to some extent, the three main units are all hitting something of a sweet spot.

Unsurprisingly perhaps, the only words of caution relate to the US presence, from where the recent banking turmoil emanated. Most of the group’s credit impairment figure, which has risen to £524 million for the quarter from £141 million previously, relates mainly to the Consumer, Cards & Payments (CC&P) for US card balances. However, these are provisions, not actual losses, and a prudent approach to an economy which could be approaching a recession is understandable.

The strength of the US dollar has also worked for and against the bank. On the one hand, it has had a beneficial impact when translating income and profit back to sterling, but it also works against the group in terms of operating expenses and impairment charges. Nonetheless, the overall income figure saw growth of 11% to £7.2 billion, compared to £6.5 billion in the corresponding period and above the consensus estimate of £6.8 billion. Such revenues growth was achieved with growth in each of the three main units. Barclays UK saw income growth of 19%, largely driven by a rise of 21% in Net Interest Income given higher interest rates. The Corporate and Investment Bank (CIB) nudged ahead by 1%, with higher banking transaction income offsetting a drop in lower investment banking fees, and with the quarterly figure hitting a new record of £4 billion. CC&P income rose by 47%, with higher US card balances and private bank growth each being major drivers.

In terms of financial strength, the bank has had a strong start to the year, with each of the key metrics in fine fettle. The cost/income ratio reduced to 57% from 63%, better than the expected 59%, while the capital cushion was marginally ahead of estimates at 13.6%. the liquidity coverage ratio of 163% is comfortably ahead of regulatory requirements and also gives the group manoeuvrability both in terms of weathering any impending storms as well as continuing shareholder returns. The Return on Tangible Equity was another notable highlight, coming in at 15% versus a previous 11.5% and an expected 12.3%.

As largely expected, there were no updates in terms of shareholder returns, except that the bank maintained its aim for a progressive dividend policy and further share buybacks where appropriate, with perhaps a concrete announcement at the half-year stage. In the meantime, a dividend yield of 4.7% is a further investment attraction for investors who are mindful of a generally rising interest rate environment elsewhere.

The pre-tax profit result of £2.6 billion also outpaced both expectations and the previous number, both of which were £2.2 billion. The first-quarter outcome has provided a firm foundation for the rest of the year, with the group likely to see the continuing benefits of a model which is diversified both in terms of geography and business lines. 

The deterioration in sentiment for the banks globally given the recent turmoil has affected the sector’s share prices, and Barclays is no exception despite its relative distance from the fray. The shares are down by 17% over the last three months, although over the last year the price remains ahead by 8%, as compared to a gain of 6% for the wider FTSE 100. The strength of these numbers and an unchanged outlook from the group will give some comfort to embattled investors, with the market consensus of the shares as a buy likely to remain intact.

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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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