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Barclays (BCS) Stock Gains as Earnings in Q3 Improve Y/Y

Barclays BCS reported third-quarter 2020 net income attributable to ordinary equity holders of £611 million ($789 million) against a net loss recorded in the prior-year quarter.

Shares of the company gained more than 5% in pre-market trading. However, the full day’s trading session will likely depict a better picture.

Results were primarily hurt by an increase in credit impairment charges as well as lower revenues. Moreover, an increase in operating expenses was a major headwind.

Revenues Decline, Expenses Rise

Net operating income was £4.60 billion ($5.94 billion), down 9.5% year over year. The decline was mainly due to a fall in net interest income and higher credit impairment charges.

Operating expenses (excluding litigation and conduct costs) totaled £3.39 billion ($4.38 billion), up 3% from the year-ago quarter.

Cost to income ratio was 67%, down from 88% recorded a year ago.

Credit impairment charges increased 31.9% year over year to £608 million ($785.2 million).

Pre-tax income was £1.15 billion ($1.49 billion), up significantly year over year.

Segmental Performance Decent

Barclays U.K.: Profit before tax was £196 million ($253.1 million) against loss before tax recorded in the year-ago quarter. The segment witnessed a fall in net operating income and higher expenses.

Barclays International: Profit before tax was £1.17 billion ($1.51 billion), up 2.5% year over year. The rise was driven by impressive performance of the corporate and investment bank division.

Head Office: Loss before tax was £214 million ($276.4 million), wider than the loss incurred in the prior-year quarter.

Balance Sheet & Capital Ratios Strong

Total assets as of Sep 30, 2020, were £1,421.7 billion ($1,829.8 billion), up 2.6% sequentially.

As of Sep 30, 2020, Common Equity Tier 1 ratio was 14.6%, up from 13.4% on Sep 30, 2019.

Total risk-weighted assets were £310.7 billion ($399.9 billion) as of Sep 30, 2020.

Guidance

The company expects 2020 expenses (excluding litigation and conduct costs) to be stable compared with 2019.

Impairment charges in the second half of 2020 are expected to be materially below that of the first half of the year.

Barclays continues to target return on tangible equity of more than 10%.

Further, cost to income is projected to be less than 60%.

Our View

Given Barclays’ restructuring and business simplification efforts, its operating efficiency is expected to improve in the quarters ahead. However, owing to a tough operating backdrop, Brexit-related concerns and continued uncertainty related to the impact of the coronavirus outbreak; revenue growth is expected to continue to be hampered to some extent in the near term.

Barclays PLC Price, Consensus and EPS Surprise

 

Barclays PLC Price, Consensus and EPS Surprise

Barclays PLC price-consensus-eps-surprise-chart | Barclays PLC Quote

Currently, Barclays carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance & Upcoming Releases of Other Foreign Banks

UBS Group AG UBS reported third-quarter 2020 net profit attributable to shareholders of $2.09 billion, up significantly from $1.05 billion in the prior-year quarter. The company’s performance was supported by a rise in net fee and commission income (up 8% year over year) along with a rise in net interest income (up 39%). However, higher expenses posed as a headwind.

Itau Unibanco Holding S.A. ITUB is scheduled to report quarterly numbers on Nov 2, while Mitsubishi UFJ Financial Group MUFG will report results on Nov 11.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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