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Barclays (BCS) Stock Falls 7% Despite Rise in Q3 Earnings
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Barclays PLC’s (BCS - Free Report) third-quarter 2017 net income attributable to ordinary equity holders was £583 million ($763.1 million), reflecting a significant improvement from £190 million in the prior-year quarter.
In the pre-market trading, Barclays’ shares were down nearly 7% on the NYSE, reflecting investors’ concerns related to continued slump in trading and investment banking. The actual picture will emerge after the full day’s trading session, once investors and analysts go through the core results.
Lower expenses, decline in credit impairment charges and rise in advisory fees more than offset fall in net interest income, lower trading income and muted underwriting fees.
Revenues Decline, Costs Fall
Net operating income was £4.46 billion ($5.84 billion), down 4.1% year over year. The decline was mainly due to lower net interest income.
Operating expenses (excluding U.K. bank levy and litigation and conduct) totaled £3.27 billion ($4.28 billion), declining 8.6% from the year-ago quarter. Also, after considering litigation charges, expenses plunged 22.4% year over year to £3.36 billion ($4.40 billion).
Cost to income ratio was 65%, down from 79% in the year-ago period.
Credit impairment charges decreased 10.1% from the prior-year quarter to £709 million ($928 million).
Pre-tax earnings of £1.11 billion ($1.45 billion) decreased from £1.68 billion in the year-ago quarter.
Segment Performance
Barclays UK: Profit before tax came in at £661 million ($865.2 million), significantly improving from £75 million in the year-ago quarter. Lower litigation related costs and impairment charges were the primary reasons for the segment’s improved performance.
Barclays International: Profit before tax came in at £652 million ($853.4 million), falling 39.9% 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: Loss before tax was £206 million ($269.6 million), marginally improving from loss before tax of £229 million in the prior-year period.
Strong Balance Sheet and Capital Ratios
Total assets as of Sep 30, 2017 came in at £1,149.3 billion ($1,539.11 billion), up 1.2% sequentially. As of Sep 30, 2017, Common Equity Tier 1 ratio was 13.1%, up from 12.4% as of Dec 31, 2016.
Total risk-weighted assets were £324.3 billion ($434.29 billion) as of Sep 30, 2017.
Outlook
The company targets to achieve ROTE of greater than 9% in 2019 and more than 10% in 2020.
Management expects operating expenses (excluding litigation and conduct charges) to be in the range of £14.2-£14.3 billion in 2017 and £13.6-£13.9 billion in 2019.
Our View
Pressure on revenues is mainly due to Barclays’ declining market share in global trading business. Nonetheless, its efforts to restructure and simplify its operations by divesting non-core businesses are commendable. These initiatives are expected to support the company’s profitability in the near term.
The Royal Bank of Scotland Group plc , HSBC Holdings plc (HSBC - Free Report) and Credit Suisse Group AG are scheduled to announce third-quarter 2017 results on Oct 27, Oct 30 and Nov 2, respectively.
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Barclays (BCS) Stock Falls 7% Despite Rise in Q3 Earnings
Barclays PLC’s (BCS - Free Report) third-quarter 2017 net income attributable to ordinary equity holders was £583 million ($763.1 million), reflecting a significant improvement from £190 million in the prior-year quarter.
In the pre-market trading, Barclays’ shares were down nearly 7% on the NYSE, reflecting investors’ concerns related to continued slump in trading and investment banking. The actual picture will emerge after the full day’s trading session, once investors and analysts go through the core results.
Lower expenses, decline in credit impairment charges and rise in advisory fees more than offset fall in net interest income, lower trading income and muted underwriting fees.
Revenues Decline, Costs Fall
Net operating income was £4.46 billion ($5.84 billion), down 4.1% year over year. The decline was mainly due to lower net interest income.
Operating expenses (excluding U.K. bank levy and litigation and conduct) totaled £3.27 billion ($4.28 billion), declining 8.6% from the year-ago quarter. Also, after considering litigation charges, expenses plunged 22.4% year over year to £3.36 billion ($4.40 billion).
Cost to income ratio was 65%, down from 79% in the year-ago period.
Credit impairment charges decreased 10.1% from the prior-year quarter to £709 million ($928 million).
Pre-tax earnings of £1.11 billion ($1.45 billion) decreased from £1.68 billion in the year-ago quarter.
Segment Performance
Barclays UK: Profit before tax came in at £661 million ($865.2 million), significantly improving from £75 million in the year-ago quarter. Lower litigation related costs and impairment charges were the primary reasons for the segment’s improved performance.
Barclays International: Profit before tax came in at £652 million ($853.4 million), falling 39.9% 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: Loss before tax was £206 million ($269.6 million), marginally improving from loss before tax of £229 million in the prior-year period.
Strong Balance Sheet and Capital Ratios
Total assets as of Sep 30, 2017 came in at £1,149.3 billion ($1,539.11 billion), up 1.2% sequentially. As of Sep 30, 2017, Common Equity Tier 1 ratio was 13.1%, up from 12.4% as of Dec 31, 2016.
Total risk-weighted assets were £324.3 billion ($434.29 billion) as of Sep 30, 2017.
Outlook
The company targets to achieve ROTE of greater than 9% in 2019 and more than 10% in 2020.
Management expects operating expenses (excluding litigation and conduct charges) to be in the range of £14.2-£14.3 billion in 2017 and £13.6-£13.9 billion in 2019.
Our View
Pressure on revenues is mainly due to Barclays’ declining market share in global trading business. Nonetheless, its efforts to restructure and simplify its operations by divesting non-core businesses are commendable. These initiatives are expected to support the company’s profitability in the near term.
Barclays PLC Price, Consensus and EPS Surprise
Barclays PLC Price, Consensus and EPS Surprise | Barclays PLC Quote
Barclays currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Upcoming Releases
The Royal Bank of Scotland Group plc , HSBC Holdings plc (HSBC - Free Report) and Credit Suisse Group AG are scheduled to announce third-quarter 2017 results on Oct 27, Oct 30 and Nov 2, respectively.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>