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After our last update on HSBC and our comment on UBS and Credit Suisse, today we look at Barclays (NYSE:BCS). This is the first time we have commented on this British multinational bank. But it’s a company that needs no introduction, especially for those who work in finance. Barclays is a global investment bank and financial services company headquartered in London.
Q1 How
In the first quarter, the British institution reported £1.4 billion in net income, beating market expectations, which were estimated at £644 million. Compared to the same period of the previous year, however, the decline was 18%. Looking at sales again, revenue rose 10% to £6.5 billion – this was driven by solid investment banking revenues despite peak market volatility. Operating expenses rose to £4.11 billion from £3.58 billion in the first quarter of 2021, on the back of higher spending on ongoing litigation in the United States.
Barclays Q1 Snap (Q1 Results)
To deepen the investigation, the British bank announced last month that it had sold $15.2 billion in more investment products than it was allowed to. The bank subsequently set aside around £540m, which is currently under investigation by the SEC. Following the announcement, Barclays emphasized that the start of the buyback program was being delayed and stuck with the program with the intention of starting it as soon as possible after the deposit requirements reached with the SEC were completed. That’s exactly what happened, and the bank recently hired JPM to begin buying back shares.
Barclays Inquiry (Q1 Results)
Looking at the other key financials, Barclays’ CET1 ratio came in at 13.8%, up from 15.1% in the same period last year. Return on tangible equity was 11.5%, also down from 14.7% in the year-ago quarter. The bank said it will continue to target a return on tangible equity of more than 10%. The results come after a tumultuous end to 2021, when longtime CEO Jes Staley resigned in November after regulators probed his relationship with Jeffrey Epstein. His successor emphasized that earnings growth is being driven by global markets, which has helped clients navigate current market volatility caused by geopolitical and economic challenges, including the devastating war in Ukraine and the impact of higher interest rates in the US and Great Britain.
Why are we positive? And our conclusion
After attending JPMorgan’s Investor Day, we understood that the Markets segment was up more than 15% in the second quarter as well. Our internal team believes this is a positive catalyst for the British bank as Markets division upgrades are likely to more than offset Banking division downgrades. Our internal estimates replicate Q1 performance with a further £1.6bn of results in Q2 despite the usual seasonality. We believe this can be achieved thanks to higher rate hikes and implied market volatility. Barclays’ business is likely to benefit from the higher VIX environment, supported by higher volumes and margins.
Second, the investment bank pipeline is quite strong and we believe this will lead to upgrades. It’s true that the current environment isn’t very favorable, but the CFO seems pretty optimistic about the franchise.
For the above, here in the lab, we are increasing our 2022 EPS forecast by 5% with a forecast ROTE of 10% (higher than the Wall Street consensus). With share buybacks reviving, we believe Barclays’ underperformance will reverse, also on the back of lower provisions and higher Markets 2022 guidance.
Barclays Guidance (Q1 Results)
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