Barclays’ profits slip on investment banking weakness

Barclays’s third-quarter profits fell narrowly following a slowdown in its investment banking operation, which offset strength in its credit card arm. 

The banking giant’s pre-tax profits dipped to £1.9billion for the three months ending September, although this was above the £1.7billion anticipated by analysts.

Its total income fell slightly to £6.3billion, due partly to the impact of merging two divisions, as well as weaker dealmaking in its corporate and investment banking arms. 

Forecast: The banking giant revealed pre-tax profits dipped to £1.9billion for the three months ending September, although this was above the £1.7billion anticipated by analysts

This offset a resilient performance by its consumer and credit card business, which benefitted from higher balances on US credit card customers.

The firm’s earnings were further dragged down by increasing operating expenses and credit impairment charges resulting from rising interest rates and falling house prices. 

For the opening nine months of 2023, Barclays’ impairment charges were 84 per cent higher than in the same period last year, a factor attributed to delinquencies at its US card business returning to pre-pandemic levels.

Looking ahead, though, the lender has reduced its expected full-year net interest margin to between 3.05 and 3.1 per cent because of the more challenging economic backdrop.

As a result, it is holding off on further share buybacks, having finished a £750million repurchase over the summer.

Following the trading update, Barclays shares slumped 6.75 per cent to 134.3p on Tuesday morning, making them the biggest faller on the FTSE 100 Index.

Matt Britzman, equity analyst at Hargreaves Lansdown, said: ‘Pulling back a bit, Barclays continues to trade at a discount to European peers, largely a result of poor image from a slew of mishaps and a lack of faith that recent returns are sustainable.’

However, he added that the view had ‘perhaps been a little overdone. 

‘Return on tangible equity is starting to consistently surpass the key 10 per cent level, the structural hedge should be a healthy income tailwind, and while the investment banking arena continues to look dicey, green shoots are emerging.’

Barclays’ results follow a mixed earnings season by the largest US banks, with Morgan Stanley being hit by a massive fall in dealmaking revenues but other banking giants posting either moderate growth or declines.

Investment banking deals have slid considerably over the past 18 months, but there have been notable signs recently of a recovery, such as the $54billion listing of smartphone chip designer ARM Holdings on the Nasdaq.

Barclays’ trading update also comes a fortnight after its former CEO Jes Staley was banned from holding any senior position in the City due to misleading regulators over his relationship with convicted paedophile Jeffrey Epstein.

The Financial Conduct Authority reported that Staley had ‘recklessly approved’ a letter sent by Barclays to the City watchdog that his last contact with Epstein had been ‘well before’ he became CEO.

A prominent shareholder group has recently called on the bank’s chairman, Nigel Higgins, to quit over concerns that the board, which he has led for the last four years, took Staley’s assurances at face value.

This post first appeared on Dailymail.co.uk