- Bank increases its provisions for motor finance compensation by £235 million
- Modest increase in loan impairment costs
- Third-quarter profits still meet expectations
- Management launches third share buyback of year to take total to £2.5 billion
“After a slight stumble thanks to concerns over whether a couple of spectacular bankruptcies in the USA mean the credit cycle is turning down, and some turbulence in US banking stocks, shares in Barclays are turning higher again after a strong set of third-quarter results,” says AJ Bell investment director Russ Mould.
“Profits of £2.1 billion match expectations, despite an additional £235 million charge for motor finance compensation and a small uptick in loan losses thanks to two specific items, and management feels confident enough to launch a third share buyback of the year, this time for £500 million, to take the total for the year to £2.5 billion.
“That strong signal, and maintenance of targets for return on tangible equity for 2025 and 2026, may help to soothe those who had started to fret as US banking shares took a dive after the high-profile failures of First Brands and Tricolor. Barclays shares are now heading back toward the 17-year high reached last month.
Source: LSEG Refinitiv data
“According to consensus analysts’ forecasts, Barclays, after the strong third quarter profit of £2.1 billion, is on track to record its best ever year for pre-tax income, barring some unforeseen disaster in the fourth and final quarter, and exceed the £8.4 billion made in 2021.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts
“Whether this is enough to persuade the Chancellor of the Exchequer, Rachel Reeves, to clout the bank with a new round of taxes, windfall or otherwise, remains to be seen in next month’s Budget, but Barclays can at least claim that it is doing its bit for the economy by extending credit. Growth in the loan book accelerated to 6.8% year-on-year in the quarter, helped by the Tesco Bank and GM credit card deals.
Source: Company accounts
“That loan book is showing no real sign of any deterioration in quality or increase in distress and the third-quarter loan loss rate of 0.53% is comfortably within management’s expectation of 0.50% to 0.60% on average, over a credit cycle. It does represent an increase from the lows, when interest rates were all but zero in the West, but that is only to be expected after the increases in headline borrowing costs sanctioned by central banks since 2022.
“The increased conduct costs, thanks to motor finance redress at Barclays and Clydesdale, will disappoint some, especially as the FTSE 100 firm has done a good job of late when it comes to keeping out of trouble, but shareholders will now hope that the additional £235 million in costs, to take the total to £325 million, draws a line under the affair to the satisfaction of regulators and consumers alike.
Source: Company accounts
“The much-maligned investment bank also continues to perform consistently and an increase in initial public offering and secondary placements could help as stock markets remain strong, while Trump, trade and tariff-related volatility across all asset classes may not do harm, at least within reason.
“Lowly loan losses, steady net interest margins and net interest income, modest conduct costs and strong ongoing investment bank performance would all help to support analysts’ consensus forecast for record headline profits this year and next, as well as cash returns to shareholders.
“Consensus analysts’ forecasts of £1.3 billion in dividend payments now come with £2.5 billion in share buybacks on top, for a total cash return this year of £3.8 billion, a figure which equates to just under 10% of Barclays’ stock market capitalisation. Such a cash yield easily beats inflation, benchmark government gilt yields and returns on cash, to perhaps help keep investors interested.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts
“Barclays is also the cheapest of the big five FTSE 100 banks on the basis of price to book value. Tangible net asset value per share (TNAV) rose again in the third quarter, to 392p a share, as a further sign that Barclays is performing consistently well.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts
“That leaves the shares on barely one times book value. The discount to the other four no doubt reflects lingering scepticism over the investment bank and the cyclical, unpredictable nature of its earnings, but it has yet to find any major financial market potholes this time around, at least for now.”
