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Barclays (BCS) Reports Loss in Q2 on Africa Unit Disposal
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Barclays PLC’s (BCS - Free Report) second-quarter 2017 net loss attributable to ordinary equity holders was £1.40 billion ($1.79 billion), mainly reflecting losses incurred from the disposal of the Africa unit. Notably, in the prior-year quarter, net profit attributable to ordinary equity holders was £677 million.
In the pre-market trading, Barclays was up nearly 1.4% on the NYSE, reflecting investors’ optimism about its future performance as its restructuring activities were concluded with the closure of Non-Core segment on Jul 1. The actual picture will emerge after the full day’s trading session, once investors and analysts go through the core results.
As Barclays continued to wind up its non-core businesses, net operating income witnessed a fall. Also, as expected, trading income decreased and investment banking fees remained muted. Further, higher credit impairment charges and a rise in litigation costs acted as headwinds.
However, lower adjusted operating expenses and a modest improvement in net interest income were the tailwinds. But these were not enough to support Barclays’ profitability.
Revenues Decline, Adjusted Costs Fall
Net operating income was £4.5 billion ($5.75 billion), down 17.4% year over year. The decline was mainly due to lower net fee, commission and other income, and increase in credit impairment charges.
Operating expenses (excluding U.K. bank levy and litigation and conduct) totaled £3.40 billion ($4.35 billion), down 1% from the year-ago quarter. Nonetheless, after considering litigation charges, expenses rose 6% year over year to £4.11 billion ($5.26 billion).
Cost to income ratio was 81%, up from 65% in the year-ago period.
Credit impairment charges increased 8% from the prior-year quarter to £527 million ($673.9 million).
Pre-tax earnings of £659 million ($673.9 million) decreased from £1.27 billion in the year-ago quarter.
Disappointing Segment Performance
Barclays UK: Loss before tax came in at £74 million ($94.6 million) against profit before tax of £376 million in the year-ago quarter. Higher litigation related costs, and fall in net fee, commission and other income were the primary reasons for the segment’s dismal performance.
Barclays International: Profit before tax came in at £1.26 billion ($1.61 billion), falling 27% year over year. The decline was mainly due to dismal performance by Consumer, Cards and Payments division. Also, market revenues witnessed a fall.
Head Office: Profit before loss was £122 million ($156 million) against profit before tax of £257 million in the prior-year period.
Barclays Non-Core: Loss before tax amounted to £406 million ($519.2 million), narrower than loss of £1.09 billion incurred in the year-ago period. The company closed the segment on Jul 1 and “incorporate[d] the residual assets back into the Core.”
Strong Balance Sheet and Capital Ratios
Total assets as of Jun 30, 2017 came in at £1,135.32 billion ($1,479.06 billion), down 6.4% from the Dec 31, 2016 level. As of Jun 30, 2017, Common Equity Tier 1 ratio was 13.1%, up from 12.4% as of Dec 31, 2016.
Total risk-weighted assets were £327.41 billion ($426.54 billion) as of Jun 30, 2017.
Our View
Barclays is facing pressure on revenues owing to weak global economic recovery and uncertainty related to Brexit. Additional legal provisions for past business misconducts are expected to further hamper bottom-line growth. While the bank's efforts to restructure and simplify its operations by divesting non-core businesses are commendable, stringent regulatory landscape will continue to weigh on the company’s near-term performance.
Deutsche Bank AG (DB - Free Report) reported net income of €466 million ($512.4 million) in second-quarter 2017, significantly up on a year-over-year basis. Income before income taxes more than doubled to €822 million ($903.9 million) on a year-over-year basis.
HSBC Holdings plc (HSBC - Free Report) and The Royal Bank of Scotland Group plc are scheduled to announce second-quarter 2017 results on Jul 31 and Aug 4, respectively.
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Barclays (BCS) Reports Loss in Q2 on Africa Unit Disposal
Barclays PLC’s (BCS - Free Report) second-quarter 2017 net loss attributable to ordinary equity holders was £1.40 billion ($1.79 billion), mainly reflecting losses incurred from the disposal of the Africa unit. Notably, in the prior-year quarter, net profit attributable to ordinary equity holders was £677 million.
In the pre-market trading, Barclays was up nearly 1.4% on the NYSE, reflecting investors’ optimism about its future performance as its restructuring activities were concluded with the closure of Non-Core segment on Jul 1. The actual picture will emerge after the full day’s trading session, once investors and analysts go through the core results.
As Barclays continued to wind up its non-core businesses, net operating income witnessed a fall. Also, as expected, trading income decreased and investment banking fees remained muted. Further, higher credit impairment charges and a rise in litigation costs acted as headwinds.
However, lower adjusted operating expenses and a modest improvement in net interest income were the tailwinds. But these were not enough to support Barclays’ profitability.
Revenues Decline, Adjusted Costs Fall
Net operating income was £4.5 billion ($5.75 billion), down 17.4% year over year. The decline was mainly due to lower net fee, commission and other income, and increase in credit impairment charges.
Operating expenses (excluding U.K. bank levy and litigation and conduct) totaled £3.40 billion ($4.35 billion), down 1% from the year-ago quarter. Nonetheless, after considering litigation charges, expenses rose 6% year over year to £4.11 billion ($5.26 billion).
Cost to income ratio was 81%, up from 65% in the year-ago period.
Credit impairment charges increased 8% from the prior-year quarter to £527 million ($673.9 million).
Pre-tax earnings of £659 million ($673.9 million) decreased from £1.27 billion in the year-ago quarter.
Disappointing Segment Performance
Barclays UK: Loss before tax came in at £74 million ($94.6 million) against profit before tax of £376 million in the year-ago quarter. Higher litigation related costs, and fall in net fee, commission and other income were the primary reasons for the segment’s dismal performance.
Barclays International: Profit before tax came in at £1.26 billion ($1.61 billion), falling 27% year over year. The decline was mainly due to dismal performance by Consumer, Cards and Payments division. Also, market revenues witnessed a fall.
Head Office: Profit before loss was £122 million ($156 million) against profit before tax of £257 million in the prior-year period.
Barclays Non-Core: Loss before tax amounted to £406 million ($519.2 million), narrower than loss of £1.09 billion incurred in the year-ago period. The company closed the segment on Jul 1 and “incorporate[d] the residual assets back into the Core.”
Strong Balance Sheet and Capital Ratios
Total assets as of Jun 30, 2017 came in at £1,135.32 billion ($1,479.06 billion), down 6.4% from the Dec 31, 2016 level. As of Jun 30, 2017, Common Equity Tier 1 ratio was 13.1%, up from 12.4% as of Dec 31, 2016.
Total risk-weighted assets were £327.41 billion ($426.54 billion) as of Jun 30, 2017.
Our View
Barclays is facing pressure on revenues owing to weak global economic recovery and uncertainty related to Brexit. Additional legal provisions for past business misconducts are expected to further hamper bottom-line growth. While the bank's efforts to restructure and simplify its operations by divesting non-core businesses are commendable, 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 #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Peer Performance & Upcoming Releases
Deutsche Bank AG (DB - Free Report) reported net income of €466 million ($512.4 million) in second-quarter 2017, significantly up on a year-over-year basis. Income before income taxes more than doubled to €822 million ($903.9 million) on a year-over-year basis.
HSBC Holdings plc (HSBC - Free Report) and The Royal Bank of Scotland Group plc are scheduled to announce second-quarter 2017 results on Jul 31 and Aug 4, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early. See Zacks' 3 Best Stocks to Play This Trend >>