ii view: what to make of Barclays' latest results

Investment banking is winning over traditional high street banking. Buy, sell or hold?

Full-year results to 31 December 2020

Chief executive James E Staley said:

"In a year in which the Covid-19 pandemic affected people across the globe, 2020 demonstrated our strengths, our values, and our resilience.

“2020 demonstrated the value of our diversified banking model, delivering resilient Group results even in a difficult macroeconomic period, driven by the performance of our CIB.

“Barclays remains well capitalised, well provisioned for impairments, highly liquid, with a strong balance sheet, and competitive market positions across the Group. We expect that our resilient and diversified business model will deliver a meaningful improvement in returns in 2021."

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 full-year 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 now more like JPMorgan (NYSE:JPM) in the US than its UK rivals. 

Over the course of 2020, further provisions for payment protection insurance (PPI) and Covid-19 related costs resulted in a significant decline in profits for its more traditional banking business. However, core elements of its investment banking business continued to prove their worth. Revenues for its Fixed income or bond trading business jumped by 53% year-over-year to £5.1 billion. Revenues for its equity related investment bank business rose by 31% year-over-year. Overall profit before tax for the investment bank jumped by 35% to £4 billion. The chief executive himself noted the “value of our diversified banking model.”

For investors, the tough backdrop for more traditional banking cannot be ignored. Accompanying management outlook comments flagging expected subdued demand for unsecured lending offer caution. Elevated Covid-19 related costs are expected to remain in 2021. However, the results overall beat City expectations. A further increase in the capital cushion provides strength in its balance sheet, enabling the return of shareholder returns, given prior regulator permission. In all, while a 30%-plus gain in the share price since vaccine announcements in November may leave the shares looking up with events, Barclay’s post financial crisis decision to retain its investment bank/market operations continues to look sensible.

Positives

• Diversity of business and geographical location
• Markets and investment banking achieved their best ever income performance

Negatives

• Barclays UK profit before tax, excluding litigation and conduct, fell 78% to £578 million
• Low interest rates broadly reduce traditional banking profit

The average rating of stock market analysts:

Buy