Barclays Plc’s traders surpassed expectations in the first quarter with a surprise increase in fixed income revenue, helping offset falls in equities trading and dealmaking.
(Bloomberg) — Barclays Plc’s traders surpassed expectations in the first quarter with a surprise increase in fixed income revenue, helping offset falls in equities trading and dealmaking.
Fixed-income trading revenue rose 9% to £1.79 billion ($2.2 billion), compared to a 11% fall expected by analysts. Overall pretax profit rose to £2.6 billion, beating expectations, according to analyst estimates compiled by Bloomberg.
“FICC was an important part but not the only part,” Chief Executive Officer C.S. Venkatakrishnan said in an interview with Bloomberg TV, noting the bank performed well across business units.
Deposits rose by about £10 billion in the quarter, even as rivals including Deutsche Bank AG saw declines as clients fled to safety following the failure of Silicon Valley Bank. “The UK has been more insulated from that deposit flight across banks, than certainly the US,” said Venkatakrishnan.
Shares in the lender rose as much as 5.1% in early trading and were 4.7% higher at 9:37 a.m.
Barclays is the second major UK bank to report earnings, following Standard Chartered Plc yesterday, as investors seek more clarity on the health of the global economy and lenders’ readiness for any distress.
The bank reported provisions for souring loans of £524 million, more than three times higher than a year ago but slightly better than estimates. Barclays said the rise reflected “continuing normalisation anticipated in US cards delinquencies” as it builds this business, helped by a credit card portfolio it bought from Gap Inc.
Transaction banking income rose 68%, the best first-quarter performance since at least 2014. Equities trading, though, fell a worse-than-expected 33% to £704 million, falling short of a blowout quarter a year ago.
And costs disappointed, with total operating expenses at the UK unit up 9% to £1.1 billion due to the impact of inflation. The lender said its digitization effort would result in savings over time, while Finance Director Anna Cross told journalists that the first quarter would likely be the peak for costs this year.
What Bloomberg Intelligence Says
Barclays’ 23% beat on FICC revenue in 1Q confirms strength in the investment bank’s franchise, while adding diversification to income as interest-rate driven upgrades fade. At £1.8 billion, the 9% year-over-year rise is ahead of most peers across Europe and the US, but was offset by equities, down 33%. Costs disappointed, missing estimates by 5%, with the efficiency ratio dipping to 57%, vs. a low-60’s target.
— BI analyst Philip Richards
The absence of deals and financing activity has meant traders rather than rainmakers are driving the performance of the investment bank. Barclays joins most major Wall Street banks benefiting from market volatility in fixed income as traders bet on rapidly changing interest rates and inflation.
Investment banking fees decreased 7%, reflecting muted market-wide activity. But that was better than many rivals, with the bank saying a strong performance in advisory helped partially offset the decline.
Rising rates also helped Barclays to improve margins in its UK retail business, where total income rose 19% to almost £2 billion. The unit’s net interest margin increased to 3.18%.
Other highlights from Barclays’s earnings in the first quarter include:
- CET1 ratio of 13.6%
- Corporate lending income decreased 24% to £95 million
- Consumer, cards and payments income increased 47% to £1,306 million
- Reiterated earlier target of return on tangible equity of more than 10% in 2023
–With assistance from Donal Griffin, Francine Lacqua and Aisha S Gani.
(Updates with share price, CEO and finance director comments from third paragraph.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.