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Barclays (BCS) Q3 Earnings Rise as Bond Trading Improves
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Barclays PLC’s (BCS - Free Report) third-quarter 2016 net income from continuing operations was £509 million ($668.2 million), up 5% from the year-ago quarter. Also, pre-tax earnings of £837 million ($1.10 billion) grew 35% year over year, reflecting rebound in bond trading income.
Notably, in the pre-market trading, Barclays was up over 2% on the NYSE. Notably, the actual picture will emerge after the full day’s trading session, once investors and analysts go through the core results.
Rebound in bond trading and encouraging investment banking performance were the primary reasons for improved earnings. Further, a rise in net interest income acted as a tailwind. However, these were not enough to support revenues, which continued to be hurt by disposal of assets. Also, a rise in credit impairment charges and higher operating expenses were the undermining factors.
Attributable profit for the quarter was £414 million ($543.5 million), inching down 1% from the prior-year quarter.
Revenue Falls; Cost Rises
Net operating income was £5.65 billion ($7.42 billion), down 8% year over year.
Operating expenses totaled £4.32 billion ($5.67 billion), up 2% from the year-ago quarter. This reflected an increase in litigation charges and implementation costs associated with the structural reform plan.
Owing to its restructuring plan, management reiterated its operating expense (excluding conduct and litigation and other notable items) in 2016 for the Core division to be £12.8 billion.
Cost to income ratio was 79%, up from 78% in the year-ago period.
Segmental Performance
Barclays UK: Profit before tax came in at £75 million ($98.5 million), down 90% from the year-ago quarter. Lower net operating income and a rise in operating expenses were the primary reasons for the deterioration.
Barclays International: Profit before tax came in at £1.09 million ($1.43 billion), surging 71% from the prior-year quarter. The increase was driven by improvement in Corporate and Investment Bank, and Consumer, Cards and Payments divisions.
Head Office: Loss before tax was £229 million ($300.6 million), compared with profit-before tax of £20 million in the prior-year period.
Barclays Non-Core: Loss before tax amounted to £94 million ($123.4 million), improving from a loss of £758 million incurred in the year-ago period.
Strong Balance Sheet and Capital Ratios
Total assets as of Sep 30, 2016 came in at £1,324 billion ($1,722 billion), up 18% from the Dec 31, 2015 level. As of Sep 30, 2016, Common Equity Tier (“CET”) 1 ratio was 11.6%.
Total risk-weighted assets were £373.4 billion ($485.6 billion) as of Sep 30, 2016.
Our Take
We expect Barclays’ diversified business model and sound financial position to consistently support its overall growth in the future. Further, the bank’s expense reduction as well as restructuring initiatives is expected to improve profitability over the long term. However, muted revenue growth, tepid global economic recovery and a stringent regulatory landscape will continue to weigh on the company’s near-term performance.
Among other foreign banks, UBS Group AG (UBS - Free Report) and The Royal Bank of Scotland Group plc are slated to announce results on Oct 28, while HSBC Holdings plc (HSBC - Free Report) will report on Nov 7.
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Barclays (BCS) Q3 Earnings Rise as Bond Trading Improves
Barclays PLC’s (BCS - Free Report) third-quarter 2016 net income from continuing operations was £509 million ($668.2 million), up 5% from the year-ago quarter. Also, pre-tax earnings of £837 million ($1.10 billion) grew 35% year over year, reflecting rebound in bond trading income.
Notably, in the pre-market trading, Barclays was up over 2% on the NYSE. Notably, the actual picture will emerge after the full day’s trading session, once investors and analysts go through the core results.
Rebound in bond trading and encouraging investment banking performance were the primary reasons for improved earnings. Further, a rise in net interest income acted as a tailwind. However, these were not enough to support revenues, which continued to be hurt by disposal of assets. Also, a rise in credit impairment charges and higher operating expenses were the undermining factors.
Attributable profit for the quarter was £414 million ($543.5 million), inching down 1% from the prior-year quarter.
Revenue Falls; Cost Rises
Net operating income was £5.65 billion ($7.42 billion), down 8% year over year.
Operating expenses totaled £4.32 billion ($5.67 billion), up 2% from the year-ago quarter. This reflected an increase in litigation charges and implementation costs associated with the structural reform plan.
Owing to its restructuring plan, management reiterated its operating expense (excluding conduct and litigation and other notable items) in 2016 for the Core division to be £12.8 billion.
Cost to income ratio was 79%, up from 78% in the year-ago period.
Segmental Performance
Barclays UK: Profit before tax came in at £75 million ($98.5 million), down 90% from the year-ago quarter. Lower net operating income and a rise in operating expenses were the primary reasons for the deterioration.
Barclays International: Profit before tax came in at £1.09 million ($1.43 billion), surging 71% from the prior-year quarter. The increase was driven by improvement in Corporate and Investment Bank, and Consumer, Cards and Payments divisions.
Head Office: Loss before tax was £229 million ($300.6 million), compared with profit-before tax of £20 million in the prior-year period.
Barclays Non-Core: Loss before tax amounted to £94 million ($123.4 million), improving from a loss of £758 million incurred in the year-ago period.
Strong Balance Sheet and Capital Ratios
Total assets as of Sep 30, 2016 came in at £1,324 billion ($1,722 billion), up 18% from the Dec 31, 2015 level. As of Sep 30, 2016, Common Equity Tier (“CET”) 1 ratio was 11.6%.
Total risk-weighted assets were £373.4 billion ($485.6 billion) as of Sep 30, 2016.
Our Take
We expect Barclays’ diversified business model and sound financial position to consistently support its overall growth in the future. Further, the bank’s expense reduction as well as restructuring initiatives is expected to improve profitability over the long term. However, muted revenue growth, tepid global economic recovery and a stringent regulatory landscape will continue to weigh on the company’s near-term performance.
BARCLAY PLC-ADR Price and EPS Surprise
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Barclays currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other foreign banks, UBS Group AG (UBS - Free Report) and The Royal Bank of Scotland Group plc are slated to announce results on Oct 28, while HSBC Holdings plc (HSBC - Free Report) will report on Nov 7.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>