Revenue Below Expectations and Reduced Margin Guidance Affect Performance
Barclays, one of the U.K.’s prominent banks, experienced a challenging week as its shares fell by as much as 7% on Thursday. The bank reported revenue below expectations and adjusted its margin guidance, leading to investor concerns.
The bank’s pretax profit of £1.96 billion saw a significant increase of 31%, surpassing the consensus estimate of £1.91 billion. This positive performance was mainly due to fewer impairments compared to analysts’ predictions. However, despite this profit growth, Barclays faced a setback as its income decreased by 6% to £6.29 billion, falling short of the consensus figure of £6.53 billion.
Analysts drew attention to the bank’s new guidance regarding its net interest margin in the U.K. for the year. The estimate currently stands at 3.15%, slightly below the anticipated 3.2%. Barclays attributed this adjustment to several factors, including customers maintaining lower deposit balances and changes in deposit pricing. It appears that customers are utilizing their excess deposits to pay down mortgages due to the surge in mortgage rates in the U.K.
Despite these challenges, Barclays remains committed to maintaining a significant presence in corporate and investment banking, which currently accounts for 60% of its risk-weighted assets. The CEO, C.S. Venkatakrishnan, emphasized the strategic importance of the investment bank’s success while aiming for a better balance by expanding other areas of the bank.
Interestingly, within corporate and investment banking, Barclays plans to focus on less-capital intensive sectors for future investments. This approach aims to mitigate the revenue volatility associated with divisions such as fixed income, currency, and commodities, as well as equities. Analyst Andrew Coombs from Citigroup highlighted that while Barclays has gained market share, the high quarterly volatility of these revenue streams leads to a lower valuation from investors.
U.K.-based banks are encountering various obstacles, beyond just Barclays. NatWest and Lloyds have also experienced challenges in recent days. NatWest saw its shares slump 7% due to the resignation of its CEO, while Lloyds witnessed a 3% decline in its stock value as its pretax profit fell short of analyst estimates.
Despite these setbacks, the U.K. banking sector remains resilient, with Barclays actively working towards a more balanced and successful future.
