Barclays reports strong earnings on robust investment bank revenue

Barclays shares surged to a nine-year high on the NYSE following strong third-quarter earnings, primarily driven by growth in its investment bank. CEO Venkatakrishnan expressed confidence in meeting the three-year targets set earlier this year.

British bank Barclays posted strong third-quarter earnings, lifting its shares by more than 4% in after-hours trading on the New York Stock Exchange, reaching their highest level since 2015. Following this rally, Barclays’ shares are up roughly 60% year-to-date and 80% over the past year, making it one of the top performers in the FTSE 100.

The solid results were mainly driven by its investment bank, cost-cutting measures, and a healthy capital ratio following the strategic overhaul announced in February. The bank also offered an optimistic outlook for its net interest income in 2024.

Revenue and profitability growth

Barclays reported a profit before tax of £2.2 billion (€2.6 billion), an 18% increase compared to the same quarter last year, surpassing analysts’ expectations of £2 billion (€2.4 billion). Total income grew by 5% to £6.5 billion (€7.8 billion), while operating costs continued to decline. The cost-to-income ratio improved to 61%, down from 63% a year earlier.

The investment bank, Barclays’ largest segment, generated £2.9 billion in revenue, a 6% year-on-year increase, accounting for 44% of the bank’s total income. This growth was driven by higher fee income in advisory services, as well as debt and equity capital markets, mirroring trends seen at major US banks, with capital markets buoyed by expectations of lower interest rates and loosening liquidity conditions this year.

The group’s return on tangible equity (RoTE) rose to 12.3% in the third quarter, up from 9.9% in the second quarter. Barclays’ balance sheet remains solid, with its Common Equity Tier 1 (CET1) ratio increasing to 13.8% from 13.6%. The bank upgraded its net interest income (NII) forecast for 2024, predicting it will exceed £11 billion (€13 billion).

Group chief executive, C.S. Venkatakrishnan, commented: “We remain focused on disciplined execution of our three-year plan and are encouraged by the progress so far. While there is still work to be done, the Group is on track to achieve its target of over 12% RoTE by 2026.”

Cost-cutting measures

In February, Barclays announced a strategic overhaul aimed at reducing costs following a net loss in the fourth quarter of last year. The operational restructuring includes job cuts, asset sales, and a reorganisation of its business divisions, as well as a three-year plan to return £10 billion (€12 billion) to shareholders through dividends and share buybacks. As part of this strategy, the bank also announced the acquisition of Tesco’s retail banking business, a move expected to “help create new distribution channels for our unsecured lending and deposit businesses,” according to Venkatakrishnan.

Barclays’ strong third-quarter results highlight the success of its sweeping strategic restructuring, reversing a profit decline that had persisted since the final quarter of last year. CEO Venkatakrishnan stated in the earnings report: “The acquisition of Tesco Bank, which is set to complete on 1 November 2024, is part of our commitment to invest in the UK. We continue to exercise cost discipline and remain well-capitalised, with a CET1 ratio of 13.8% at the end of the quarter.”