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Earnings

Barclays' second-quarter profit beats expectations amid Brexit uncertainty, boosts dividend by 20%

Key Points
  • Barclays on Thursday reported its second-quarter net profit of £1.03 billion ($1.25 billion). The British bank upped its dividend payment by 20%.
  • Barclays CEO Jes Staley told CNBC Thursday that surpassing 9% ROTE for both quarters so far this year constituted the "best statutory first-half performance that Barclays has had in nearly a decade."
VIDEO4:3004:30
Barclays CEO: Focused on bringing return on tangible equity to double digits

Barclays reported second-quarter net profit of £1.03 billion ($1.25 billion) on Thursday, compared to £1.2 billion in the same period a year earlier.

Analysts polled by Reuters expected these numbers to come in at £988.87 million.

The British bank also upped its dividend payment by 20%, announcing that it would pay an interim dividend of 3 pence per share, in a signal of confidence in its capacity to improve returns. Barclays said it expects the full-year dividend to be around three times that figure.

Here are some of the key takeaways:

  • Second-quarter pre-tax profit came in at £1.5 billion, down from £1.9 billion a year ago.
  • Return on tangible equity (ROTE) came in at 9.3%, down from 12.3% from a year ago.
  • The bank's core capital ratio was reported at 13.4%, up from 13% at the end of the previous quarter.

Barclays CEO Jes Staley told CNBC Thursday that surpassing 9% ROTE for both quarters so far this year constituted the "best statutory first-half performance that Barclays has had in nearly a decade."

"We continue to be very confident that we can deliver greater than a 9% return on tangible equity for the year, and the second quarter was progress in that direction," he told CNBC's "Squawk Box Europe." ROTE measures the bank's ability to deal with potential losses. The higher the ROTE, the more sound the bank is considered to be.

The British bank is navigating weak economic growth projections in the U.K. and euro zone as ongoing uncertainty over trade and Brexit bleaken the outlook from the European Central Bank (ECB) and the Bank of England, the latter of which makes its interest rate decision Thursday.

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Barclays 'fully prepared' for any Brexit outcome, CEO says

"Brexit is one of the most significant economic events for the U.K., and at the date of this report its effects are subject to unprecedented levels of uncertainty of outcomes, with the full range of possible effects unknown," Barclays warned in its second-quarter results.

Meanwhile, Barclays had warned in its first-quarter earnings that if tough market conditions persisted, it could be forced to reduce annual costs for 2019 below the previously expected £13.6 billion to £13.9 billion range. The bank reaffirmed in its second-quarter earnings that full-year costs are expected to come in below £13.6 billion.

Low interest rates

The U.S. Federal Reserve cut interest rates by 25 basis points on Wednesday, with the ECB expected to follow suit before the end of the year.

"In the medium-term, it is a challenge for all banks on the income side when you have interest rates approaching zero and in many cases below zero. Effectively when risk-free money is free, that is a challenge for the banking industry," Staley told CNBC.

"On the other side of that, if it holds off a recession and generates economic growth, there is great benefit to the banks in having that growth. It's a fine balance that the central bankers have to play."

Rising rates are good for banks since they are able to lend out money to investors at a profitable rate of interest. Lower interest rates restrict the bank's ability to make profits thus adding pressure on margins.

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