Wednesday Oct 25 2023 06:21
4 min
Barclays shares fell by as much as 8% in early trading on Tuesday as the bank announced a substantial drop in third-quarter profits and a lowered growth outlook for the UK. The company also warned of forthcoming major cost reduction measures and said it would unveil a plan in February.
The bank’s net profit saw a 16% decline, falling to £1.3 billion, primarily due to underperforming revenue from investment banking when compared to U.S. counterparts and narrowing profit margins at its British consumer lending division.
Barclays CEO C.S. Venkatakrishnan also disclosed plans for an investor update alongside the full-year results scheduled for February. This update will involve the reallocation of capital within the company, the introduction of new financial targets, and is expected to result in “material structural cost actions”. The aim is to boost Barclays’ market valuation, which currently ranks among the lowest of any lender in Europe.
“We are trying to create a more efficient organisation, you should expect us to look in all areas” for savings, the chief executive said, declining to comment on the scale and location of any job cuts or business exits. “We owe our investors some kind of an update.”
As of 14:10 PM GMT, Barclays shares were down 9.34%, trading around the 130.58p area, as per MarketWatch data. Since the start of the year, the Barclays share price has declined by over 16.5%.
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Markets.com Chief Markets Analyst Neil Wilson summarised Barclays’ grim outlook in morning notes released on Tuesday:
“[Barclays] profits down 16% on slowing growth in the UK retail business and drop in investment banking revenues. Tailwind of rising rates is starting to reverse with a clear indication that net interest margins are peaking. Group revenues +5% were in line [with expectations], whilst net profit beat expectations at £1.3bn thanks to a lower impairment charge.
Income from the Corporate and Investment Bank fell 6% to £3.1bn, reflecting lower client activity in both Global Markets - against record FICC performance a year ago, admittedly - and Investment Banking fees. Management also warning on charges due to cost cuts and has trimmed net interest income outlook, with net interest margins seen in a range of 3.05% to 3.10% in 2023 – in July it had warned of a decline to 3.15% from 3.2%, so investors are looking at increasing pressure on core profitability.
Shares down 6%, with UK banking stocks caught in the crossfire ahead of their earnings updates this week – chiefly it seems on the downgrade to net interest margins”
Barclays rivals Lloyds Bank and NatWest both saw declines of 2.2% and 2.7% in Tuesday trading respectively.
"These results are likely to lower market expectations further for UK banks, and we see a negative read-across for Lloyds and NatWest," analysts at JPMorgan told Reuters correspondents Lawrence White and Iain Withers.
Barclays also announced that its net interest margin — the difference between the interest received on loans and the rate paid for deposits — is expected to fall in the range of 3.05% to 3.1%, below earlier projections of approximately 3.15%. This adjustment is primarily due to political pressure to support savers and the persistent impact of inflation on reducing returns from lending activities.
"Consumers are no longer happy to park their cash in low-rate current accounts and are going shopping for higher yields," Reuters quoted Matt Britzman, equity analyst at Hargreaves Lansdown, as saying.
When considering shares for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.
Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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