Barclays’ profits jumped by more than a quarter in the first three months of the year as rising interest rates buoyed its retail banking and credit cards business, offsetting a mixed performance at its investment bank.
Net profit increased to £1.8 billion (€2 billion) in the first quarter from £1.4 billion in the same period last year, beating analysts’ expectations, the bank said on Thursday. Revenue rose 11 per cent to £7.2 billion, exceeding the £6.8 billion estimate.
The improvement was led by Barclays UK, its ring-fenced consumer lender, where profit jumped 30 per cent to £515 million. This was “primarily driven by net interest income growth from higher rates”, Barclays said, as the Bank of England lifted its base rate to a 15-year high of 4.25 per cent last month.
This allowed its net interest margin – the difference between the interest it receives on its loans and the rate it pays for deposits – to grow to 3.18 per cent from 2.62 per cent last year. The improvement is a good omen for NatWest and Lloyds, which report their results in the coming days.
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Revenues at Barclays’ international consumer, cards and payments division similarly benefited from the rate environment, surging 47 per cent to £1.3 billion as US credit card balances grew.
The bank’s stock was up just over 4 per cent in early trading but remains down 2 per cent so far this year and continues to trade at a depressed valuation of around half the book value of its assets.
“Not a lot to nitpick in a strong quarter characterised by revenue strength in all segments,” said Jefferies analyst Joseph Dickerson. “At first blush we see some scope for outlook upgrades given the UK and cards were better than expected.”
Despite concerns about inflation and a cost of living crisis, impairments remained low on a historical basis and there was “limited observed deterioration” of its lending book, Barclays said. Overall, credit impairment charges rose to £524 million from £141 million.
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The results will come as a welcome relief after a turbulent 2022 for chief executive, CS Venkatakrishnan, who has returned to work after successful treatment for blood cancer.
“All three businesses have performed well with high quality income growth and double-digit returns,” Mr Venkatakrishnan said. “Risk management and robust liquidity have helped insulate Barclays from events in the industry,” he added, referring to the collapses of Credit Suisse and Silicon Valley Bank in March.
Numis analyst Jonathan Pierce said: “The only potential grumble is that the group has not announced a further share buyback despite having completed the £500 million announced at full year already.”
Mr Venkatakrishnan said the bank “continue[s] to place a high priority on this” and investors would be updated on its capital return plans soon.
The investment bank did not have as buoyant a quarter, however, as profits fell 8 per cent to £1.2 billion.
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Analysts flagged a strong performance in fixed-income trading, which reported a 9 per cent rise in revenue to £1.8 billion, outperforming rivals on Wall Street as well as Deutsche Bank. The German lender also reported earnings on Thursday and said that business saw a 17 per cent drop in income.
That was not sufficient to prevent an overall 8 per cent decline in trading income to £2.5 billion, however. Income from equities dropped 33 per cent, which the bank blamed on less volatile markets. Advisory and capital markets fees also fell 7 per cent to £603 million in a deal making drought.
Litigation and conduct expenses in the quarter fell to £1 million from £523 million last year, a positive after a bruising 2022 when a trading error led to the bank improperly selling $17.7 billion (€16 billion) of structured financial products. That scandal resulted in more than £700 million in settlement and compensation costs.
Mr Venkatakrishnan also addressed the revelations from a series of US lawsuits about the close ties between his predecessor Jes Staley and Jeffrey Epstein, the deceased paedophile.
“I am really in no position to comment on the new allegations, which are very serious,” he said on a call with reporters. “We have to wait for the outcome of the legal proceedings in New York,” which is the “right and proper place” for a verdict.
Mr Staley stepped down in 2021 after a UK regulatory investigation into whether he was honest about his relationship with Epstein when he was his private banker at JP Morgan. Mr Staley is being personally sued by JP Morgan, which says he withheld information about Epstein crimes from them. Mr Staley has called the allegations against him “slanderous” and is contesting them in court.
At the time, the Barclays board, led by chair, Nigel Higgins, continued to back Mr Staley and said it was “disappointed” by the outcome.
Mr Venkatakrishnan, who worked for Mr Staley at JP Morgan, has previously described him as his “manager, mentor and friend for many years” and praised him for taking over “in one of our darkest hours and devised and implemented a successful recovery strategy of outstanding vision”. – The Financial Times
