Barclays crushes expectations for the third quarter as provisions for loan losses fall

Key Points
  • The improvement, which more than doubles analyst expectations of £273.5 million, comes in part due to a sharp reduction in coronavirus-related impairment charges.
Unlikely that UK will see negative interest rates: Barclays CEO

Barclays on Friday reported a net profit of £611 million ($797.7 million) for the third quarter, as the British lender attempts to plot a recovery from the coronavirus pandemic.

The bank's net profit attributable to shareholders more than doubles analyst expectations of £273.5 million, comes in part due to a sharp reduction in coronavirus-related impairment charges.

In the first half of 2020, the British lender posted a net income of £695 million after adding another £1.6 billion of loan loss provisions in the second quarter.

This time around, cash set aside to accommodate bad loans amounted to just £608 million, well below the £1 billion expected.

Barclays shares climbed 7.7% by afternoon trade on Friday.

"In the first half of this year we took a very, very robust impairment charge and our impairment reserves, so our reserves for credit losses, is well north of £9 billion right now," Barclays CEO Jes Staley told CNBC's "Squawk Box Europe" on Friday.

"That is the highest level of reserves that we have ever had, so we feel that we are very well situated in our balance sheet to deal with whatever economy we face in the latter part of this year and next year."

Other highlights:

  • Common equity tier one capital (CET1) ratio was 14.6%, up from 14.2% at the end of the first half.
  • Group income hit £5.2 billion, down from £5.54 billion in the third quarter of 2019.
  • Return on tangible equity (RoTE) was 5.1%, up from 0.7% the previous quarter and -2.4% for the third quarter of 2019.
  • Net interest margin (NIM) was 2.51%, little changed from 2.48% in the previous quarter.

The bank has issued a £100 million Community Aid package distributed among charities in the U.K. in a bid to help mitigate the impact of the pandemic.

"This support is made partly possible because we have a resilient and diversified business model which means we remain profitable as we weather this crisis, with strong income performance in our CIB (corporate and investment bank) more than offsetting headwinds in our consumer businesses," Staley said in a statement Friday.

Barclays Bank building
Chris Ratcliffe | Bloomberg | Getty Images

The CIB posted an attributable profit before tax of £627 million, down from £694 million the previous quarter. FICC (fixed income, currency and commodity) trading income fell from £1.47 billion to £1 billion as the heightened volumes seen earlier in the year continue to normalize, while equity trading income increased from £674 million to £691 million quarter-on-quarter.

Staley told CNBC that the investment bank had underwritten more than $1 trillion in debt financing for governments and corporations around the world over the last six months.

The bank reported a net loss of £292 million for the same period in 2019 after being hit by £1.4 billion ($1.8 billion) worth of insurance claims.

Major lenders have generally surprised to the upside so far this earnings season, with UBS easily surpassing expectations earlier this week to post a net income to $2.1 billion.

Barclays shares are down more than 42% since the turn of the year.