ii view: diversification sets Barclays apart from the rest

A more diversified business model sets this bank apart from UK rivals. Buy, sell or hold?

First-quarter results to 31 March

• Income down 6% from Q1 2020 to £5.9 billion
• Pre-tax profit up 166% to £2.4 billion
• Bad debt provision down significantly from £2.1 billion in Q1 2020
• Operating expenses up 10% to £3.6 billion
• Capital cushion or CET1 ratio down 0.5% to 14.6%
• £700 share buyback programme completed

Chief executive James E Staley said:

"Since the early days of the pandemic last year, our diversified business has demonstrated the resilience critical to ensuring Barclays' financial integrity. It gives us the capacity to step up for our customers, clients, colleagues and communities when they need our support the most, and deliver for our shareholders by staying profitable in every quarter.

"With a strong balance sheet and diversified business, Barclays remains well-positioned to support the economy and deliver for our shareholders."

ii round-up:

Barclays (LSE:BARC) operates via the two divisions of Barclays UK and Barclays International. 

The UK division includes personal banking, Barclaycard consumer UK and UK business banking. Personal banking generates just over half of all revenues for the division.

Barclays International comprises both its Corporate and Investment Banking (CIB) and consumer, cards, and payments segments in Europe and the US. 

For a round-up of these first-quarter results, please click here.

ii view:

Like rivals, Barclays has looked to become a simpler more focused bank since the financial crisis. Unlike rivals, the bank has kept much of its markets/investment banking operations. Barclays' structure is today more like JP Morgan in the US than its UK rivals. 

For investors, these latest results again appear to justify its investment bank operations. Income or revenue for its UK Barclays banking business fell by 8%, pressured by ongoing ultra-low interests. Income for its card business declined by 22% as consumers looked to pay down debt and used their cards less under pandemic lockdowns. 

Revenue also declined for its corporate banking and investment bank business but only by 1%. Although fixed income revenues retreated compared to a blow-out first quarter a year ago, equity-related revenues rose by 65%. In essence, central bank policy to keep interest rates at record lows is hurting cash-related traditional banking but benefiting asset classes such as equities. In all, and as the bank’s chief executive continues to stress, diversification of business type is helping to set this bank apart. 

Positives

Hopes for a write-back of previous bad debt provisions later in 2021

Growing point-of-sale partnership with Amazon (NASDAQ:AMZN)

Negatives

Operating expenses up 10% to £3.6 billion

Low interest rates broadly reduce traditional banking profit

The average rating of stock market analysts:

Buy