Investment banking boost helps Barclays despite £1.4bn PPI charge
Barclays has confirmed a £1.4bn hit to its balance sheet following a rush of payment protection insurance (PPI) claims.
The British bank also warned that a gloomy global economic outlook could make it harder to hit profit targets despite posting a double-digit rise in pre-tax profit for its third quarter today.
Read more: Amazon shares slump
Chief executive Jes Staley warned: “We acknowledge that the outlook for next year is unquestionably more challenging now than it appeared a year ago, in particular given the uncertainty around the UK economy and the interest rate environment.”
The lending giant posted a double-digit rise in pre-tax profit for the third quarter of this year, but the figure excluded costs from a surge in last-minute PPI complaints.
Profits before tax climbed to £1.8bn during the third quarter, trumping analyst estimates of £1.5bn after being boosted by a strong performance in its investment bank.
Group return on on tangible equity (Rote) – a key profitability target – was 10.2 per cent in the third quarter and 9.7 per cent in the year-to-date.
Staley added: “These represent another set of consistent and resilient results, and they show the benefits of our diversified model – one which allows us to weather today’s macro headwinds, and grow our businesses and profitability over time.”
Staley added that Barclays UK had delivered “a robust year-to-date RoTE of 17.2 per cent”.
Barclays’ share price rose 2.7 per cent to 170.9p in early trading, boosted by the investment banking unit’s performance.
Earlier this week PPI charges also dented RBS, which swung to a loss after putting aside £900m for the mis-selling scandal.
Barclays’ warning over the world’s economic outlook follows the International Monetary Fund (IMF) warning that global growth will fall to its lowest level since the financial crisis this year.
The world will achieve just three per cent economic growth, the IMF warned.
It blamed trade war tensions for the warning, but also pointed the finger at Brexit uncertainty and China’s debt reforms for knocking confidence.
“The lending side of the business is suffering but the trading business has performed well,” Think Markets analyst Naeem Aslam said.
“Barclays blamed the low-interest environment for its performance and on top of that, the bank also used the Brexit uncertainty as an excuse for its lacklustre results,” he added.
“The theme was very similar to RBS. For instance, the weakness in the domestic economy is something both banks can’t get their heads around.
Read more: RBS swings to a loss thanks to PPI scandal
“Where the bank has performed well is the trading and corporate banking side, the total income soared 17 per cent and this is mainly due to the improvement in equity and fixed income trading.”
But Steve Miley, a senior market analyst at Ask Traders, said traders are cheering Barclays’ better than forecast investment banking results.
“Following RBS’ gloomy figures from Natwest Markets, the bar for Barclays had been lowered,” he added. “The fact Barclays cleared that bar is part of what is driving the share price higher.
But that will not rule out concerns for the investment banking arm going forward, Miley said.
“Concerns linger over the expected performance of the investment arm going forward. Brexit is also adding a level of uncertainty,” he warned.