Barclays has today reported an 82% increase in its half-year pre-tax profits, despite stating the warnings around the current economic climate.
This is the bank’s highest six months result in nine years.
However, it was not all good news for Barclays. Margin pressure in UK mortgages and less activity in the global investment banking market saw total income slip 1% in the first half to £10.8bn.
A significant increase in credit impairments meant that underlying profits fell 15.5% to £3.1bn – although at a reported level that was more than offset by lower conduct and litigation charges.
The bank announced an interim dividend of 3p, up 20% year-on-year.
The shares rose 1.3% in early trading this morning.
James E Staley, Group Chief Executive Officer commented: “This was another resilient quarter of performance.
For the second quarter in succession Barclays generated an attributable profit of over £1bn, and delivered EPS of 12.6p for the first half of 2019.
“Our Group Return on Tangible Equity of 9.3% for the quarter is a further step towards meeting our 2019 RoTE target of greater than 9%. Our reported CET1 ratio increased by 40 basis points in Q2 to 13.4%, demonstrating the strong capital generation capacity of the business.
“Barclays UK continued to build its mortgage and deposit balances, with stable credit metrics. This has partially offset the reduction in net interest margin from increased levels of customer refinancing, and lower interest earnings from UK cards balances. Digital engagement with our UK customers is at an all time high, with just under eight million customers now digitally active on the Barclays App.
“The Corporate & Investment Bank produced a 9.3% return in the quarter, and we saw market outperformance in Banking fees and in Fixed income, Currencies and Credit. Consumer, Cards & Payments continues to progress, producing an RoTE of 18% in the quarter and 16.7% for the half year.
“Management focus on cost control remains a priority, and we expect to reduce expenses to below £13.6bn for 2019. This all puts us in a position to continue to increase the return of capital to shareholders by declaring a half year dividend of three pence. The half year dividend is around a third of what we expect to pay in total in a given year under normal circumstances.
“This increase in ordinary dividend reflects the confidence that the Board and management have in the sustainable earnings generation of our business. Barclays’ progressive capital returns policy, and intention to supplement the ordinary dividend with additional cash returns, including share buybacks when appropriate, remains unchanged.”
Nicholas Hyett, Equity Analyst at Hargreaves Lansdown
These are a really mixed, and pretty messy set of numbers. The lack of PPI compensation and US mortgage fines mean that on the face of it this half has been a big step forward on last year, however, the underlying numbers are less rosy.
Margin pressure in the UK mortgage market has dented income at home, while the corporate and investment bank has done better than a relatively pessimistic market had expected. It’s been a disappointing quarter on costs as the group continues to invest in digital capabilities, although in the long run that should improve efficiency and the group expects to pull that back in the second half.
If there’s one thing these numbers do drive home it’s the advantage Barclays enjoys from a relatively diversified business model. The UK retail market looks like it’s becoming more and more competitive, particularly mortgages, and a squeeze on margins at the same time as the economic outlook is weakening is a potentially unpleasant combination. Investment banking and an international credit card business are cyclical as well of course, but at least they’re exposed to the global rather than domestic cycle.