Barclays posts profit beat for the third quarter on strong bond trading revenue

LONDON — Barclays on Wednesday reported an unexpected rise in third-quarter earnings on the back of strong trading revenues, despite a continued drag from a costly U.S. trading error.

The British lender posted a net profit attributable to shareholders of £1.512 billion ($1.73 billion), above consensus analyst expectations of £1.152 billion and marking an increase from a restated £1.374 billion for the same period last year.

“We delivered another quarter of strong returns, and achieved income growth in each of our three businesses, with a 17% increase in Group income to £6.4 billion,” Barclays CEO C.S. Venkatakrishnan said in a statement.

“Our performance in FICC (fixed income, currencies and commodities trading) was particularly strong and we continued to build momentum in our consumer businesses in the U.K. and U.S.”

The group continued to take a hit from an over-issuance of securities in the U.S., which have led to £996 million in litigation and conduct charges so far this year.

The largest upward contribution to the bank’s performance came from its FICC (fixed income, currencies and commodities) trading operations, where income soared 93% in the third quarter year-on-year to £1.546 billion.

The bank also benefited from an increase in net interest margin — the difference between what a bank earns in interest on loans and pays on deposits — which rose to 2.78% from 2.53% as the group reaped the benefits from higher interest rates.

• Common equity tier one capital (CET1) ratio was 13.8%, compared to 15.4% at the end of the third quarter of 2021 and 13.6% in the previous quarter.
• Group income including the impact from the over-issuance of securities hit £6 billion, up from £5.5 billion for the same period last year.
• Return on tangible equity (RoTE) was 12.5%, compared to 11.4% in the third quarter of 2021.
• Credit impairment charges rose to £381 million, up from £120 million last year, with the bank citing a “deteriorating macroeconomic outlook.”

Barclays shares will begin Wednesday’s trading session down almost 20% on the year.

Strong results, but caution abounds

John Moore, senior investment manager at RBC Brewin Dolphin, said that despite the strong performance, with Barclays benefiting from robust fixed income trading and market volatility, along with a boost to net interest income, there is “a caution to today’s statement and little in the way of news in terms of returns for shareholders — perhaps in response to the recently mooted prospect of a windfall tax on banks.”

“Looking ahead, the uncertain economic backdrop will likely put a brake on some of Barclays markets, particularly at its credit cards and investment banking divisions, with the outlook for corporate action — such as capital raises — more difficult,” Moore said.

“Despite previous errors still plaguing its results, Barclays remains the best positioned of the major UK banks with a more diversified income stream — but there are still challenges ahead.”

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, noted that Barclays’ diversified income stream makes it more resilient than many peers during periods of economic downturn, but suggested that a “grey cloud” of governance concerns still hangs over the bank.

“The recent over-issuance of U.S. securities is only the latest blunder and questions have been raised about increased risk because of weak oversight at the firm,” she said.

“One thing’s for certain, Barclays cannot afford another slip-up without questions and concerns becoming a more substantial downturn.”