Barclays (NYSE:BCS) reported its first quarter earnings on Thursday. A quick glance through the numbers lends support to the trends witnessed in the Q1 figures of major U.S. banks like Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) over the past few days – with strong improvements in trading operations and heavy charges related to debt valuation adjustments (DVA). The U.K.-based banking group generated revenues of £8.1 billion ($13.1 billion) for the period from its operations, a 30% improvement from the previous quarter, and also 5% higher than in Q1 2011.
This is a commendable effort from Barclays, considering the much better economic conditions in Q1 2011, the pressure in recent times from the British government’s ratification of the ICB’s recommendations and the fact that a sizable part of Barclays’ business is in debt-stricken Europe. This clearly helped investors look past the £337 million ($545 million) loss for the quarter after accounting charges of £2.6 billion from a revaluation of its debt, and £300 million ($485 million) related to Payment Protection Insurance (PPI) settlements.
We reiterate our $15 price estimate for Barclays’ stock, which is around 8% above its current market price.
Investment Bank is Back in Business
The weak economic conditions prevalent in the second half of 2011, coupled with extremely volatile capital markets, resulted in weak investment banking performance during the period. However the improvements seen over the last three months, specifically in the global debt market, have helped Barclays’ investment bank do what it does best – make money.
The investment bank generated just about the same amount of revenues and pre-tax profits for the period as it did in the prior year period. The strong numbers should put to rest many of the concerns that were raised about the impact of the ICB’s ring-fencing recommendation on U.K. banks. Clearly, these recommendations are not a source of immediate concern.
Consumer Banking Operations Also Solid
Barclays was also able to capitalize on the strength of its traditional banking operations in the first quarter, with growth seen across its various operating regions. In fact, outside of its operations in Europe (excluding the U.K.) the bank reported an improvement in revenue and income numbers compared to the last quarter as well as the first quarter of 2011. A reduction in credit impairment charges and other provisions also helped the quarterly results.