Barclays Shares Slide After Mixed-Bag Earnings

Investors were focused on net interest margins and lower profits

James Gard 24 October, 2023 | 10:39AM
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Barclays

Shares in Barclays (BARC) fell more than 7% to £1.33 on Tuesday morning, as net interest margin came in lower than expected and impairment charges rose.

Today's fall makes the year-to-date price return -18%, in line with similar falls at Lloyds Banking Group and NatWest this year.  

Analysts at Jeffries say investors are disappointed in the full-year forecasts for net interest margins (NIM), a key measure for banks. Net interest margin is now expected to be between 3.05% and 3.10% for the full financial year, below previous forecasts.

Net interest margin is the difference between the money a bank takes in and pays out. In a higher interest rate environment, a bank should be able to charge more for loans, credit cards and mortgages than it pays out in savings interest.

In the third quarter, total income rose 5.2% year-on-year to £6.26 billion from £5.95 billion but pretax profit fell 4.3% to £1.89 billion from £1.97 billion.

Operating costs climbed 10% to £3.95 billion, and Barclays' credit impairment charges rose to £433 million from £372 million. Its common equity tier 1 – a measure of capital buffers held by European banks – rose to 14% on September 30 from 13.9% at the end of December, and 13.8% a year before.

John Moore, senior investment manager at RBC Brewin Dolphin, said: "Despite beating expectations at a headline level, underneath it's a real mixed set of results for Barclays, reflecting an increasingly challenging backdrop.

"Sentiment has generally soured on the back of US regional banks struggling with lower- than-expected net interest margins and issues such as the well-publicised problems of Metro Bank.

"Market conditions have also not been great for Barclays' investment banking division, with deal activity relatively low. That said, its other banking operations are largely resilient – particularly its consumer and credit card business – and, with capital to invest, Barclays could be a beneficiary as some of its smaller peers struggle in the current environment."

Barclays is the first of the biggest high street banks to report earnings for the last three months, with Lloyds reporting tomorrow and NatWest on Friday.

Today's share price fall takes the bank further away from the Morningstar fair value estimate of £2.08 per share. Meanwhile, Morningstar banking analyst Niklas Kammer says of the No-Moat company:

"In the UK, Barclays operates what we believe to be a strong retail franchise underpinned by a market-leading share in credit cards. […] We like Barclays' mixed product range and geographically-diversified business but are less enthusiastic about its investment banking exposure. We find the notion the investment bank reduces earnings volatility hard to accept."

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Barclays PLC170.14 GBX0.37Rating

About Author

James Gard

James Gard  is senior editor for Morningstar.co.uk

 

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