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Will Barclays (BCS) Again Disappoint this Earnings Season?

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Barclays PLC (BCS - Free Report) is scheduled to report its second-quarter 2014 results tomorrow, Jul 30.

In the preceding quarter, this foreign bank delivered disappointing results with a 7% year-over-year decline in net income; mainly due to the slump in investment banking given the low level of client activity. However, this was partially offset by a decrease in operating expenses.

Will Barclays be able to reverse the trend this time or once again succumb to the tough industry backdrop? Let's see what factors might have influenced the earnings.

Factors Influencing Q2 Results

Repositioning of business to withstand any further crises remained the key trend among the non-U.S. banks this quarter, with Barclays being one of them. The company plans to emphasize its retail banking business, which is considered to be less risky and volatile as compared with the investment banking operations. We believe this approach will help overall revenue growth that has been muted for the last several quarters.

Also, Barclays intends to slash around 14,000 jobs by the year end. Apart from this, the company’s cost saving plan – Transform – will aid in lowering operating expenses further.

Nevertheless, the low interest rate environment persisting during the quarter resulted in the central banks of most countries prioritizing growth over inflation control. Hence, subdued interest income growth should dampen Barclays’ top line, with sluggish loan growth adding to the pressure.

Further, Barclays has been embroiled in several lawsuits and investigations. As a result, the company might have kept additional reserve for litigation expenses, which would dampen the bottom line to some extent.

Barclays currently carries a Zacks Rank #3 (Hold).

Other foreign banks that are expected to release results in the coming days  include Banco Bradesco S.A. (BBD - Free Report) , Banco Santander-Chile (BSAC - Free Report) and HSBC Holdings plc (HSBC - Free Report) . While both Banco Bradesco and Banco Santander-Chile are scheduled to report on Jul 31, HSBC will announce results on Aug 4.

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