Barclays’ British High Street business performed better than expected, and its investment bank has resumed deal-making. This led to a larger than forecast increase in the lender’s quarterly profit.
The FTSE 100 results on Thursday were a positive for CS Venkatakrishnan (also known as Venkat), the Barclays CEO who, in February, unveiled a 3-year turnaround strategy to address growing frustration among shareholders over the bank’s poor stock market performance.
Barclays announced that its pre-tax profit for the three months ending September exceeded the £2 billion forecast by analysts in the City. This was partly due to a performance that exceeded expectations in its UK retail division. Profits increased by over a fifth, reaching £924 millions. Analysts had estimated £729 millions.
The group’s investment banking, one of only a few in Europe to rival Wall Street, and which is closely monitored in the City, exceeded expectations as well. Revenues rose by 6 percent, reaching almost £2.9 billion. This was boosted by the income generated from the traders and dealmakers, who provide advice on takeovers and transactions. The increase in deal volume boosted advisory income to £186m from £80m a year ago.
Investors cheered Barclays’ figures, sending its shares up by 10p or 4.2 percent to 248p. This was the highest level in nine years. Venkat was “encouraged” by the progress made in his revamping plan three quarters into it.
Barclays, one of Britain’s largest high-street lenders, has a strong presence in the UK and an important cards business in America. Investors have been leery of Barclays’ investment banking division, which drains capital while generating volatile returns.
Venkat is reorganizing its division to reduce the size of it relative to the rest, and also grow the consumer and corporate businesses in Britain.
According to the bank’s most recent figures, its UK retail operation is in good shape. The impairment charges for bad loan amounts at this unit were only £16 million during the quarter, as opposed to £59 million one year ago. The total group impairment charge was £374 millions, which is also lower than the £452million analysts had expected.
Anna Cross is the finance director of the lender. She said that there are “few signs of stress at this time” amongst its UK clients and added, “The UK consumer has continued to do extremely well.”
Barclays expects that its UK division will generate net interest income in the region of £6.5 billion, including its acquisition of Tesco’s banking business, which was agreed to in February. This is an increase from its previous guidance, £6.3 billion.
The group’s net interest income for the full year was also raised to “more than” £11billion.
Barclays’ fair value losses of £85 million in its international corporate banking unit were a black mark on the results.
Anna Cross, Barclays’ finance director, stated that “the positions are clear fairly quickly” when banks provide debt to clients who engage in leveraged purchases, such as private equity companies.
She said that when they didn’t do so, she and her team would take an occasional and episodic fair value mark. This is what happened during the quarter.
Losses are a result of increased regulatory scrutiny on the private equity sector and bank exposures to this industry.
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