Barclays earnings beat expectations despite macroeconomic uncertainty and Brexit concerns

  • Barclays posted £1 billion ($1.29 billion) in net income for the three-month period ending Sept 30. Analysts at data firm Refinitiv had been expecting third-quarter net income to come in at around £723 million.
  • The bank has struggled to shake off long-standing reputational issues after several years of scandal. The most recent of which centered on allegations of unlawful whistle-blower mistreatment in early 2017.
  • Shares of the bank have fallen nearly 20 percent year-to-date.

Barclays reported stronger-than-anticipated earnings on Wednesday, despite difficult market conditions and lingering concerns over Brexit.

The U.K.-based bank posted £1 billion ($1.29 billion) in net income for the three-month period ending Sept 30. Analysts at data firm Refinitiv had been expecting third-quarter net income to come in at around £723 million.

Here are the key takeaways:

  • Third-quarter net income: £1 billion vs. £723 million expected by analysts at data firm Refinitiv.
  • In an attempt to reduce annual funding costs, Barclays said it will redeem $2.65 billion worth of preference shares.
  • The bank reported its core capital ratio stood at 13.2 percent at the end of the third quarter.

"In spite of macro-economic uncertainty, and particularly concerns over Brexit which weigh heavily on market sentiment, 2018 is proving to be a year of delivery on our strategy at Barclays," Chief Executive Jes Staley said in a statement Wednesday.

"We remain focused on generating improved returns, and on distributing a greater proportion of excess capital to shareholders over time," Staley said.

Barclays pre-tax profit for the quarter came to £1.46 billion compared to £1.11 billion for the same period a year earlier.

As of Sept 30., the British bank's common equity Tier 1 capital — a key measure of balance sheet strength — came in at 13.2 percent. This was in line with expectations, the bank said, and supported its previously stated plan for paying a dividend of 6.5 pence a share in 2018.

Barclays' Staley also said Wednesday that the transatlantic consumer and wholsesale lender would reduce its annual funding costs by £165 million a year. He explained the bank plans to do so by redeeming $2.65 billion worth of preference shares.

Progress in 'fits and starts'

"A jump in profits at Barclays can be largely put down to a lower level of bad loans, stemming from improved economic forecasts, stronger sterling, and some one-off adjustments," Laith Khalaf, senior analyst at Hargreaves Lansdown, said in a note to clients on Wednesday.

"That's all well and good, but it's doesn't give investors a great deal to hang hopes on in terms of profitability going forward."

Barclays Bank's UK headquarters in Canary Wharf, London.
Matt Crossick/PA Images via Getty Images
Barclays Bank's UK headquarters in Canary Wharf, London.

Income from Barclays' markets and trading business increased 19 percent during the third quarter, potentially reaffirming an investment-led banking strategy that has drawn criticism from some activist investors.

"These latest results don't really change the big picture at Barclays. Progress has been made, though it's come in fits and starts, and we'd like to see greater consistency in its performance," Khalaf said.

Reputational issues

Earlier this year, Barclays posted its best quarterly earnings report in more than three years as the bank saw its pre-tax profits almost triple in the three months through to June 30.

The much-improved figures followed a challenging 18-month period for the U.K. lender.

The bank has struggled to shake off long-standing reputational issues after several years of scandal. The most recent of which centered on allegations of unlawful whistle-blower mistreatment in early 2017.

The bank has reduced its staff members by 56,000, sold 22 business globally and closed its retail banking business across continental Africa in recent years.

It was also sued by the U.S. Department of Justice over its selling of toxic mortgage-backed securities ahead of the 2008 financial crisis — agreeing in March to pay $2 billion to settle the lawsuit.

Brexit

Antoine Lesne, head of SPDR ETF strategy and research at State Street Global Advisors, told CNBC's "Squawk Box Europe" Wednesday that it had been "quite surprising" to see Barclays not outperforming Deutsche Bank in recent months.

Germany's flagship lender also reported earnings results on Wednesday, though the latest set of figures did little to boost the beleaguered bank's balance sheet.

Lesne said Barclays' somewhat lackluster progress could stem from its struggle to effectively determine the potential impact of Brexit on market sentiment.

Britain is due to leave the EU at the end of March next year and, with little more than five months to go, London and Brussels have yet to finalize the terms of their divorce.

Therefore, bankers are still waiting to see how EU bank branches in the U.K. and British branches in the EU will be treated post-Brexit.

Barclays shares were marginally lower during early morning deals on Wednesday, having fallen nearly 20 percent year-to-date.