What does Barclay's update mean for investors?
Barclays' international business helps offset hit £2bn fines
- Barclays Q1 revenues fell 8% with profits hit by charges relating to alleged mis-selling of US residential mortgage backed securities and further PPI provisions
- Market reaction reflected the fact results were a mixed bag opening down then recovering quickly
- The Share Centre recommends Whitbread as a ‘hold’ for medium risk investors
Barclays today reported an 8% drop in first quarter revenues to £5.36bn and a £236m loss before tax compared to a £1.68bn profit last time. The company said that profits were hit by charges totalling almost £2bn to cover a number of factors including the settlement with the US authorities over alleged mis-selling of residential mortgage-backed securities and a further provision for PPI mis-selling. Lower profits in the UK were however, offset by a better than expected performance in the international business where the investment bank saw a welcome 49% rise in profits. Investors should also appreciate that despite the key capital ratio declining to 12.7% the bank said it was confident that it would return to 13% in good time and confirmed that it intends to pay a 6.5% dividend in 2018.
Group Chief Executive Jes Staley remained relatively optimistic, stating today that this had been a ‘significant quarter’ for the group as its new operating model proved it was capable of improving return to shareholders. Staley was also keen to reiterate that Barclays performance over this quarter increased confidence for the group in regards to meeting group RoTE targets of greater than 9% in 2019, and greater than 10% in 2020.
The reaction in the market today reflected the fact that the results were a mixed bag in that after opening down 2% the shares quickly recovered to Wednesday’s closing price. The improvement in profitability at the corporate and investment banking business is welcome and the bank increased its attributable profit, which strips out the charges, from £209m to £1.2bn. However, the decline in UK revenues is a concern and as a result, our overall rating remains a ‘hold’.
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