Barclays’ (BARC) first quarter results have been heavily impacted by a £1.4bn fine issued by US regulator the Department of Justice (DoJ) over the sale of mortgage-backed securities in the run-up to the financial crisis.
However, when this fine and other misconduct charges are stripped out, the UK bank’s pre-tax profit came in ahead of market forecasts.
Its adjusted pre-tax profit for the first quarter ending 31 March hit £1.7bn, a 6% beat on the £1.6bn predicted by analysts.
Barclays’ share price is flat at 212.9p suggesting the market views the bank’s first quarter performance as adequate rather than spectacular.
Driving the profit beat was a 45% improvement in credit impairment charges as the US macroeconomic picture improves as well as a 6% reduction in operating expenses.
The latter came in at £3.4bn resulting in a cost-to-income ratio of 63%. This is just a single percentage point higher than the previous year although this excludes the substantial litigation and conduct charges of £2bn.
Not such great news was a reduction in Barclays’ regulatory capital. Its common equity tier 1 (CET1) ratio has dropped to 12.7%, a weakening of its ability to withstand economic shocks. Chief executive Jes Staley says he’s confident the bank will get the figure back to 13% ‘in good time’.
For so long the Achilles heel of the business, in the first quarter Barclays’ investment banking division performed well. It achieved a return on tangible equity of 13.4% as income from equities increased by 28% to £590m. Barclays is benefiting from market volatility and increased client activity with derivatives putting in an improved performance.
DIVIDEND NEWS
Despite taking a hit to its capital in the first quarter, Barclays still intends to pay a 6.5p per share dividend at the year end. At the current share price, this implies a prospective dividend yield of 3.1%.
Gary Greenwood, analyst at Shore Capital, says ‘we believe that the stock continues to give too little credit for management’s ability to improve returns, a subject that is at the top of the agenda now that the capital position has been (largely) dealt with’.
Using the analyst’s forecasts, Barclays is trading on a price-to-net asset value ratio of 0.8-times.
