Barclays Short-term Forecast is Bleak

For investors willing to overlook Barclays’ deluge of misconduct charges, there was much to like in the bank’s underlying results for those willing to take a long-term view

Erin Davis 30 April, 2015 | 11:46AM
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There was both good and bad in Barclays’ (BARC) first-quarter results, in our opinion. The bank’s operating results showed improvement, supporting our thesis that it is likely to report decent profits in the medium term, but the size of the additional provisions for misconduct – some £800 million – were large enough to cast doubt on how long investors may have to wait for the medium term to arrive.

Still, the £800 million provided against an eventual settlement of charges that Barclays’ traders illegally manipulated foreign exchange rates is well within the £3 billion we’ve pencilled in for misconduct costs over the next few years, and we don’t expect to change our fair value estimate for the no-moat bank, excluding adjustments made to reflect our updated cost of equity methodology.

 For investors willing to overlook Barclays’ deluge of misconduct charges, there was much to like in the bank’s underlying results. Underlying profit before tax increased 9%, to £1.3 billion, as a 3% drop in revenues related to Barclays’ de-risking was more than offset by a 7% drop in operating expenses. Moreover, the increase in underlying profit before tax was broad-based across divisions, excluding Barclaycard, where it was down 1% despite a 9% increase in revenue.

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Erin Davis  is a senior banking analyst for Morningstar.