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Barclays (BCS) Reverses to Earnings in Q4 as Revenues Rise
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Barclays PLC’s (BCS - Free Report) fourth-quarter 2016 net income from continuing operations was £380 million ($472.3 million) against a net loss of £2.24 billion recorded in the prior-year quarter. Likewise, pre-tax earnings of £330 million ($410.2 million) reflected strength from pre-tax loss of £2.08 billion in the year-ago quarter. This indicates continued encouraging performance from investment banking and trading.
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.
Improved bond trading, rebound in equity trading and encouraging investment banking performance were the main reasons for the improved results. Further, a rise in net fee, commission and other income acted as a tailwind.
Also, driven by the success of its streamlining efforts and lower legal costs, Barclays reported a fall in operating expenses. However, lower net interest income and a rise in credit impairment charges were the undermining factors.
Attributable profit for the quarter was £99 million ($123.1 million) against a loss of £2.42 billion from the prior-year quarter.
For 2016, net income from continuing operations was £2.24 billion versus net loss of £3 million in 2015.
Revenues Improve, Costs Decline
Net operating income was £4.34 billion ($5.39 billion), up 11% year over year.
Operating expenses totaled £4.32 billion ($5.37 billion), down 24% from the year-ago quarter. This reflected lower litigation charges and implementation costs associated with the structural reform plan.
Cost to income ratio was 87%, down from 128% in the year-ago period.
Segmental Performance
Barclays UK: Profit before tax came in at £583 million ($724.6 million) against a pre-tax loss of £847 million in the year-ago quarter. A rise in net operating income and lower operating expenses were the primary reasons for the improvement.
Barclays International: Profit before tax came in at £373 million ($463.6 million), surging 42% year over year. The increase was driven by improvement in Corporate and Investment Bank, and Consumer, Cards and Payments divisions.
Head Office: Profit before tax was £162 million ($201.4 million) against loss-before tax of £388 million in the prior-year period.
Barclays Non-Core: Loss before tax amounted to £788 million ($979.4 million), improving from a loss of £1.1 billion incurred in the year-ago period. Notably, as the accelerated rundown led to a reduction in risk-weighted assets of £22.2 billion during 2016, the company decided to close the unit six months ahead of planned closure on Dec 31, 2017.
Strong Balance Sheet and Capital Ratios
Total assets as of Dec 31, 2016 came in at £1,213.13 billion ($1,492.34 billion), up 8% from the Dec 31, 2015 level. As of Dec 31, 2016, Common Equity Tier (“CET”) 1 ratio was 12.40%, up from 11.40% as of Dec 31, 2015.
Total risk-weighted assets were £365.65 billion ($449.81 billion) as of Dec 31, 2016.
Our View
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 and restructuring initiatives are 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.
Deutsche Bank AG (DB - Free Report) reported net loss of €1.9 billion ($2.05 billion) in fourth-quarter 2016 compared with the loss of €2.1 billion in the prior-year quarter. Higher provisions impacted the results. However, the reduction in non-interest expenses and high expenses were the positives.
UBS Group AG (UBS - Free Report) reported fourth-quarter 2016 pre-tax operating profit of CHF 1.11 billion ($1.11 billion) on an adjusted basis, up 46.6% from the prior-year quarter. While results reflected increase in net trading income, they recorded a decline in net fee and commission income. Notably, the quarter benefited from the company's consistent focus on expense management.
HSBC Holdings plc (HSBC - Free Report) reported a net loss attributable to shareholders of $4.2 billion, compared with net loss of $1.3 billion in the year-ago quarter. Despite witnessing steady success in its cost-saving initiatives, HSBC's results were hampered by streamlining operations and several one-time write downs. Further, lower revenues acted as a headwind.
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Barclays (BCS) Reverses to Earnings in Q4 as Revenues Rise
Barclays PLC’s (BCS - Free Report) fourth-quarter 2016 net income from continuing operations was £380 million ($472.3 million) against a net loss of £2.24 billion recorded in the prior-year quarter. Likewise, pre-tax earnings of £330 million ($410.2 million) reflected strength from pre-tax loss of £2.08 billion in the year-ago quarter. This indicates continued encouraging performance from investment banking and trading.
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.
Improved bond trading, rebound in equity trading and encouraging investment banking performance were the main reasons for the improved results. Further, a rise in net fee, commission and other income acted as a tailwind.
Also, driven by the success of its streamlining efforts and lower legal costs, Barclays reported a fall in operating expenses. However, lower net interest income and a rise in credit impairment charges were the undermining factors.
Attributable profit for the quarter was £99 million ($123.1 million) against a loss of £2.42 billion from the prior-year quarter.
For 2016, net income from continuing operations was £2.24 billion versus net loss of £3 million in 2015.
Revenues Improve, Costs Decline
Net operating income was £4.34 billion ($5.39 billion), up 11% year over year.
Operating expenses totaled £4.32 billion ($5.37 billion), down 24% from the year-ago quarter. This reflected lower litigation charges and implementation costs associated with the structural reform plan.
Cost to income ratio was 87%, down from 128% in the year-ago period.
Segmental Performance
Barclays UK: Profit before tax came in at £583 million ($724.6 million) against a pre-tax loss of £847 million in the year-ago quarter. A rise in net operating income and lower operating expenses were the primary reasons for the improvement.
Barclays International: Profit before tax came in at £373 million ($463.6 million), surging 42% year over year. The increase was driven by improvement in Corporate and Investment Bank, and Consumer, Cards and Payments divisions.
Head Office: Profit before tax was £162 million ($201.4 million) against loss-before tax of £388 million in the prior-year period.
Barclays Non-Core: Loss before tax amounted to £788 million ($979.4 million), improving from a loss of £1.1 billion incurred in the year-ago period. Notably, as the accelerated rundown led to a reduction in risk-weighted assets of £22.2 billion during 2016, the company decided to close the unit six months ahead of planned closure on Dec 31, 2017.
Strong Balance Sheet and Capital Ratios
Total assets as of Dec 31, 2016 came in at £1,213.13 billion ($1,492.34 billion), up 8% from the Dec 31, 2015 level. As of Dec 31, 2016, Common Equity Tier (“CET”) 1 ratio was 12.40%, up from 11.40% as of Dec 31, 2015.
Total risk-weighted assets were £365.65 billion ($449.81 billion) as of Dec 31, 2016.
Our View
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 and restructuring initiatives are 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.
Barclays PLC Price, Consensus and EPS Surprise
Barclays PLC Price, Consensus and EPS Surprise | Barclays PLC Quote
Barclays currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Foreign Banks
Deutsche Bank AG (DB - Free Report) reported net loss of €1.9 billion ($2.05 billion) in fourth-quarter 2016 compared with the loss of €2.1 billion in the prior-year quarter. Higher provisions impacted the results. However, the reduction in non-interest expenses and high expenses were the positives.
UBS Group AG (UBS - Free Report) reported fourth-quarter 2016 pre-tax operating profit of CHF 1.11 billion ($1.11 billion) on an adjusted basis, up 46.6% from the prior-year quarter. While results reflected increase in net trading income, they recorded a decline in net fee and commission income. Notably, the quarter benefited from the company's consistent focus on expense management.
HSBC Holdings plc (HSBC - Free Report) reported a net loss attributable to shareholders of $4.2 billion, compared with net loss of $1.3 billion in the year-ago quarter. Despite witnessing steady success in its cost-saving initiatives, HSBC's results were hampered by streamlining operations and several one-time write downs. Further, lower revenues acted as a headwind.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? Last year's market-beating Top 10 portfolio produced 5 double-digit winners. For example, oil and natural gas giant Pioneer Natural Resources and First Republic Bank racked up stellar gains of +44.9% and +44.3% respectively. Now a brand-new list for 2017 has been hand-picked from 4,400 companies covered by the Zacks Rank. See the 2017 Top 10 right now>>