How Barclays has managed a 13% rally this month

As our chartist predicted last month, Barclays shares have rocketed. Now, our head of markets analyses Q3 results.

For the most part, Barclays remains on track in delivering its ambitious and complicated transformation.

The bank had previously stated that cost control was a priority for this year, and a stable 62% cost/income ratio in the third quarter, despite continuing investment in its digital presence, is a worthy achievement. 

The capital cushion remains within its desired range, and the Consumer, Cards & Payments business has impressed again, with a near 16% return on tangible equity (ROTE), with targets to grow the US business further in place. Meanwhile, the overall ROTE number has exceeded 10% in the quarter, although is 9.7% in the year to date, with the target remaining 10% for 2020. 

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The PPI provision is of course unwelcome, but is nonetheless in the middle of the range which Barclays had previously guided. The UK business also had a brisk quarter, and the Corporate & Investment Bank performed particularly well, with Markets and Banking Income spiking by 13% and 33% respectively. This has led to an overall pre-tax profit increase of 4%, with the dividend yield of 4.2% supportive and the overall control on costs implying further distributions in the future, perhaps even extending to a share buyback programme.

Source: TradingView Past performance is not a guide to future performance

By the same token, there remain some areas which require careful focus. One such amber light is the impairment charges figure, which has jumped by 68%. While this is partly as the result of an annual review, it is also made in the currently benign environment of low interest rates, inflation and unemployment both in the UK and the US. Should any of these metrics tick higher, there would inevitably be pressure on the bank's loan books, which may not be an issue immediately, but it is certainly one worth watching. 

In addition, the general global uncertainty emanating all the way from the US/China trade spat to the current Brexit saga, and everything in between, be that political uncertainty or technical recessions in parts of the developed world, all filter into an outlook which is understandably cautious from the bank.

Overall, though, the glass is half-full for this update, as evidenced by the initial share price reaction - Barclays shares rose as much as 3% to over 171p, up from under 150p at the start of October. It remains to be seen whether this optimism can be maintained and, indeed, the shares have drifted 2.5% over the last year, which compares to a 4.6% gain for the wider FTSE 100 index. 

For the moment, however, the market has been vindicated in staying with the shares, and the consensus of the shares as a 'buy' is likely to remain undisturbed.