Barclays warned on Thursday of growing pressure on its UK business and missed forecasts for its investment bank as a global corporate dealmaking slump persists, sending its shares down despite announcing a bigger share buyback. The British bank reported first-half pretax profit of 4.6 billion pounds ($6 billion), in line with the average analyst forecast of 4.5 billion pounds, and higher than the 3.7 billion pounds in the same period a year ago.
“The 750 million pound buyback is the silver-lining in what was a modestly disappointing quarter for revenue with only the UK in-line,” Jefferies said in a note, suggesting Barclays’ lowered guidance on margins in Britain raised questions about its future performance. Barclays shares opened down 5%.
The bank said its net interest margin (NIM) – a key measure of profitability – in the UK would now likely dip by the end of the year below its half-year level of 3.2%, compared with previous guidance of above that level, and would likely come in at 3.15%. Banking analysts at JPMorgan said they expected small downgrades for Barclays’ future performance, partly due to squeezed margins in Britain as competition intensifies and households contend with cost-of-living pressures.
Rising interest rates in Barclays’ key markets of the UK and United States have boosted income, but they are also squeezing borrowers and increasing the risk of loan defaults.The bank set aside 896 million pounds in the six-month period for potentially soured loans, more than double the 341 million pound charge the previous year.
INVESTMENT BANK STRUGGLES
Barclays reported a 10% drop in income at its investment bank – missing analyst forecasts – with income from its fixed income, currency and commodities division down by 6% to 2.97 billion pounds and income from its equities unit tumbling 49% to 1.3 billon pounds.
U.S. banking giants such as Goldman Sachs and Citigroup earlier this month reported lacklustre results for investment banking, albeit rival JPMorgan’s finance chief Jeremy Barnum said he saw green shoots emerging in areas like stock offerings.
European rivals are also struggling, with Deutsche Bank reporting on Wednesday investment bank revenues would fall this year instead of staying flat. Several investors told Reuters this month they wanted the bank to prioritise returning more capital to shareholders instead of investing it, after the lender completed a 500 million pound buyback in April.