Barclays reported higher than expected third-quarter earnings on Thursday after rivals on Wall Street received a significant boost from its investment banking division.
The UK bank reported attributable profit of £ 1.45 billion for the third quarter. Analysts had expected it to rise to £ 931.25million, according to data from Refinitiv, and that figure marks a significant increase from the £ 611million reported in the same period. last year.
Barclays CEO Jes Staley told CNBC on Thursday that 2021 “is going to be a pretty long year” for the bank.
“For many years we have been asked the question, ‘How does Barclays achieve their return on capital target of 10% or more?’ And I think 2021 will be a pretty solid answer to that question,” did he declare.
Barclays’ corporate and investment banking division posted its best third quarter performance since the start of the year in terms of fees and equity income, increasing the bank’s return on tangible equity, a key ratio used to assess profitability.
Investment banking commission income increased 37% to £ 2.7 billion, “driven by a strong performance in the advisory and equity capital markets reflecting an increase in the commission pool and a increased market share, ”the bank said in its earnings release. Equity income soared 28% to £ 2.47bnm thanks to “strong client activity in derivatives and an increase in client balances in financing”.
- The Common Equity Tier 1 (CET1) ratio stood at 15.4%, compared to 14.6% at the end of the third quarter of 2020 and 15.1% in the previous quarter.
- The group’s income reached £ 5.5bn, up from £ 5.2bn for the same period last year.
- The return on tangible equity (RoTE) was 14.9%, compared to 3.6% in the third quarter of 2020.
Barclays’ competitors on Wall Street, Goldman Sachs, Wells Fargo, Citigroup, Bank of America, Morgan Stanley and JPMorgan, all beat earnings expectations this quarter on the strength of the investment bank over the past week .
The UK lender also released £ 622million from its loan loss provisions for the quarter. This compares to a charge of £ 608million recorded at the end of the third quarter of 2020.
Although UK Covid-19 cases have jumped to a seven-day moving average of around 45,000, Staley said Barclays is well positioned to face other economic headwinds.
“We still have over £ 6bn of depreciation reserves on our balance sheet for any future economic problems,” he said, adding that the UK’s fiscal and monetary policy response had been “extraordinarily robust”.
“The actual credit defaults that we’re seeing are at very, very low levels, so if unemployment stays roughly where it is – and government support, I think, has had its impact, the markets are very liquid.” , balance sheets are in very good shape, be it consumers or small businesses – we just don’t see any signs of significant credit deterioration yet, but if there is, we are. more than amply reserved on our balance sheet. “
Barclays shares fell around 1% at the start of trading on Thursday. Over the year to date, the bank’s share is up more than 35%.
Impact of the rate hike
the The Bank of England is expected to hike interest rates by the end of the year, with the potential for two more hikes in 2022. Staley said this would have a positive impact on Barclays profits going forward. .
“There are six cylinders that run a bank like Barclays: three cylinders lend – so the interest we earn on credit extends to businesses, small businesses and consumers. The other side of that is the interest we earn on the deposits that we have left, the money that is left at Barclays, and obviously that has been quite slow given that the interest rates have been effectively close to zero ” , did he declare.
“So I think that the return of a certain degree of inflation, given the economic recovery that we have experienced, has translated into a change in interest rates, especially when central banks start to slow down. QE. I think we’ll have higher interest rates and that will actually be pretty positive for Barclays. “