Growing Legal Provisions Weigh On Barclays’ Q1 Results

-4.90%
Downside
9.08
Market
8.63
Trefis
BCS: Barclays logo
BCS
Barclays

Barclays (NYSE:BCS) reported a strong operating performance for the first quarter of the year on April 29. [1] The U.K.-based banking giant witnessed an improvement in revenues for each of its operating divisions year-on-year. This, coupled with improved cost efficiency achieved under Project Transform, helped the bank report a 9% improvement in adjusted pre-tax income compared to the year-ago period. Notably, the adjusted pre-tax income figure of £1.85 billion ($2.8 billion) for Q1 2015 is the highest reported by the bank since Q3 2012. Barclays also gained from the overall improvement in economic conditions in Europe, as this helped its credit impairments fall to under £500 million for the first time in at least eight years.

That said, Barclays’ results for the quarter were peppered with a long list of one-time gains and charges. The biggest among them was the additional £800 million ($1.2 billion) the bank set aside in Q1 to cover ongoing settlement talks over its role in manipulating forex rates – taking the total provisions for its forex settlements to £2.05 billion ($3.2 billion). The bank was also forced to add another £150 million ($230 million) in reserves for its PPI-related misgivings, bringing the total charges related to the mis-selling of PPI and interest rate products to a whopping £6.7 billion ($10.3 billion) since Q2 2011. Besides this, Barclays also incurred a £118 million ($180 million) loss on the sale of its retail banking operations in Spain. The impact of these charges were mitigated to an extent by a one-time gain of £429 million ($660 million) related to its retirement benefit liability as well as a £128 million ($200 million) increase in the value of its own debt.

We maintain a price estimate of $18 for Barclays’ stock, which is almost 15% ahead of the current market price.

Relevant Articles
  1. Barclays Stock Trailed S&P 500 By 23% In 2023, What Happens Next?
  2. Barclays Stock Is Undervalued
  3. Where Is Barclays Stock Headed?
  4. Barclays Stock Is Undervalued
  5. What To Expect From Barclays Stock?
  6. After Earnings Miss In Q2, Where Is Barclays Stock Headed?

See our full analysis for Barclays’ stock

Trading Revenues Recover From Second Half Of 2014

Barclays’ investment banking division, which includes its trading, advisory and underwriting units, generated £2.1 billion ($3.3 billion) in revenues for Q1 2015 – slightly higher than the figure for the same quarter last year and a good 29% above the figure for Q4 2014. The gains primarily emerged from the bank’s trading desks, which churned out more than £1.5 billion ($2.3 billion) in revenues for the first time since Q2 2013. The bank’s fixed-income trading desk generated 60% of these revenues and the equities trading desk roped in the rest. It must be remembered here that the first quarter of the year is usually a strong period for the securities trading business due to the seasonal nature of the industry. In Q1 2015, trading revenues also received a leg-up from increased activity levels in debt and currency markets around the globe due to the Swiss central bank’ unexpected decision to remove the cap on the Swiss franc.

Personal and Corporate Banking Division Continues To Deliver

Barclays’ revamped business model relies considerably on the profitability of its global personal and corporate banking business – especially since the bank has had to cut down on its investment banking business over recent years. Taking a more integrated approach to retail banking, corporate banking as well as wealth management operations, Barclays seeks to leverage its geographically diversified presence to increase cross-selling of financial services and products to clients. This strategy, combined with gradually improving economic conditions around the globe, has helped the bank post strong results for its personal and corporate banking division over recent quarters.

While Barclays’ total revenues for this division remained unchanged compared to the figure for Q1 2014, there was a notable shift in the source of revenue this time around. The bank’s revenues from its personal banking and wealth management operations shrunk slightly year-on-year, but the shortfall was made up for by an increase in corporate revenues. An increase in loans to retail as well as corporate clients helped the loan portfolio swell to £219 billion.

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. Q1 2015 Interim Management Statement, Barclays Investor News, Apr 29 2015 []