Soon we’ll not be supporting this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Skip to main content
  • Register
  • Help
  • Contact us

Barclays - Less litigation, but little else to like

Nick Hyett | 26 October 2017 | A A A
Barclays - Less litigation, but little else to like

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Barclays plc Ordinary 25p

Sell: 181.64 | Buy: 181.74 | Change 0.02 (0.01%)
Chart View factsheet

Market closed | Prices delayed by at least 15 minutes | Switch to live prices

Third quarter profits before tax of £1.1bn are 32% ahead of last year, largely as a result of lower operating expenses and particularly litigation and conduct charges.

The shares fell 5% in early trading on 26 October.

Our view

The two core divisions that will make up Barclays' new structure keep things simple.

Barclays UK contains the bits we all recognise as Barclays: a High Street bank, serving 22 million retail customers and almost a million smaller businesses with current accounts, loans, cards and mortgages, plus wealth management.

Barclays Corporate & International will contain the business banking operations serving larger enterprises, a City and Wall Street investment bank, international cards operations and payments.

It's just a shame the new simple structure hasn't been delivering. PPI hasn't reared its ugly head again, but the bank is still struggling get income moving in the right direction. Bad loans, although still low, are ticking up, and the performance of the investment bank remains mixed. The markets division has been disappointing recently, and the third quarter was particularly ugly.

However, the real worry for investors will be the queues of lawyers and regulators waiting to haul the bank over the coals for past misdeeds. 23 separate investigations are named in results, involving teams from the FCA, PRA, SFO, DoJ and SEC - a veritable ABC of finance regulators from both sides of the Atlantic. CEO Jes Staley is also under investigation for attempting to uncover the identity of a whistleblower.

For all that, we like the direction Barclays is heading in. The bank is well capitalised following the sale of its majority stake in Barclays Africa, and if it can reach its new return on equity targets, it has the potential to generate healthy dividends for shareholders.

Unfortunately long suffering shareholders have longer to wait, those targets relate to 2019 and 2020. For now, analysts are pencilling in a prospective yield of 3.4% in 2018.

Register for updates on Barclays

Sign up to receive our free weekly share insight email

Third Quarter Results

Income in the third quarter fell to £5.2bn, down 5% on a year ago, as net interest income slipped. However, this was offset by significantly lower operating expenses, largely thanks to a 90% fall in litigation and conduct charges.

Going forwards the bank will target a Return on Tangible Equity (RoTE) of over 9% in 2019 and over 10% in 2020 (currently 7.1%). These targets are based on running the bank with a CET1 ratio (a common measure of banking capitalisation) of 13%. Following the sale of Barclays Africa the bank currently has a CET1 ratio of 13.1%.

Barclays is also targeting costs in 2019 of between £13.6bn and £13.9bn, excluding litigation and conduct costs. The cost:income ratio has improved to 69% in the first three quarters of the year, compared to 73% at the same point last year.

Alongside results the group announced plans to ring fence the UK bank, in line with regulation requirements.

Barclays UK saw a slight decline in total income, with slowdowns in income growth across Personal, Barclaycard UK and Wealth, Entrepreneur and Business banking. Impairments remain low, with the group delivering significant loan growth in Wealth, Entrepreneur and Business Banking. Profit before tax improved dramatically, driven by lower litigation and conduct costs.

It was not a pretty quarter for Barclays International, with income down 14% across the division. Profits before tax fell 40% as operating costs remain high. The poor performance was widespread across the business.

The Corporate and Investment bank saw income from Markets fall 31% to £977m, with Banking down 6% to £1.3bn. Profits across the business fell 33% as cuts to operating costs failed to keep pace with the fall in income.

Higher impairment charges and operating expenses hit profits in the Consumer, Cards and Payments business, with profits falling to just £59m, down 71% on the prior year.

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.