Barclays Foreshadows Significant Cost Reductions Later This Year Alongside a Third-Quarter Profit That Slightly Surpasses Projections
The British banking institution, in its report, revealed a pre-tax profit of £1.9 billion ($2.33 billion) for the quarter, a decrease from the £2 billion figure of the prior year but exceeding consensus analyst estimates of £1.77 billion.
Barclays, grappling with the challenging interest margin landscape, especially in the UK, has indicated that it is contemplating substantial structural cost-cutting measures to enhance returns. These actions might entail substantial charges as early as the fourth quarter of this year.
According to banking analysts at JPMorgan, these results are expected to further dampen market expectations for UK banks, with potential negative implications for Lloyds and Natwest, given the margin pressures highlighted by Barclays.
The bank refrained from any unplanned distribution of surplus capital to shareholders, a move that followed a £750 million buyback in July, which helped alleviate the impact of disappointing half-year results.
Barclays' CEO, C. S. Venkatakrishnan, stated that the bank would provide an investor update concurrent with its full-year results presentation. This update will outline the bank's capital allocation priorities and revised financial targets.
The bank also noted that its net interest margin, a critical profitability metric for its British retail banking segment, is now expected to fall in the range of 3.05% to 3.1%, which is slightly lower than the previous guidance of around 3.15%. This adjustment is attributed to political pressures aimed at assisting savers and persistent inflation, which have been limiting profits generated from lending.
The bank's shares experienced a decline earlier this month when Venkatakrishnan hinted at a pessimistic outlook for the banking sector's earnings. He expressed concerns about reduced returns due to elevated interest rates and sluggish activity in the investment banking sector.
Barclays surpassed expectations, with its primarily U.S.-centered credit card business delivering a strong performance.
However, the bank allocated an additional £433 million in the quarter to cover potential loan losses, attributing this to revised, more challenging economic predictions and an increase in delinquent accounts within its U.S. card division, which reached levels last seen before the pandemic.
In the same quarter, Barclays reported a 6% decrease in earnings at its investment banking segment, continuing a trend observed during the mid-year results update in July. The bank also experienced a 13% drop in revenue within its traditionally robust fixed income, currency, and commodities division, as decreased market volatility dampened clients' interest in trading.
