Barclays shares were materially lower on Tuesday after the bank lowered its net interest margin guidance for 2023 and investment banking activities underwhelmed.
Barclays shares were down around 6% at the time of writing.
Net interest margin is a key measure of profitability in retail banking activities and Barclays now say this is set to be 3.05% – 3.10% for the full year, a reduction from previous guidance.
The lowering of net interest margin guidance is important because it marks an end to improving trading conditions as a result of higher interest rates.
“This was a mixed quarter for Barclays. Higher rates are still providing a healthy tailwind, more than offsetting the impact of a weaker mortgage market and a shift in deposit levels. But it well and truly looks like net interest margin has peaked for the UK arm, with full-year guidance pulled lower,” said Matt Britzman, equity analyst at Hargreaves Lansdown.
“Consumers are no longer happy to park their cash in low-rate current accounts and are going shopping for higher yields, be that from money market funds, cash savings platforms or term deposit accounts – all of which are a hit to banking profit margins and deposit levels.”
Although net interest margins will drive Barclays shares on Tuesday, there was a small win in better-than-expected £6.4bn profit before tax in the last quarter.
In addition, resilience among their customers meant Barclays only put aside £433m in bad debt provisions.
“Profit came in ahead of expectations as losses for expected bad loans were better than feared. Credit card delinquencies in both the UK and the US remain at relatively low levels for now, despite increasing pressure on disposable incomes. Though keep an eye on the US, where things look to be trending in a more precarious direction,” said Britzman
Britzman concluded by highlighting Barclays trades at a reasonable discount to European banking peers and maybe a share to keep an eye on through the winter.
“Pulling back a bit, Barclays continues to trade at a discount to European peers, largely a result of poor image from a slew of mishaps and a lack of faith that recent returns are sustainable. It’s a valid perspective, but one that’s now perhaps been a little overdone. Return on tangible equity is starting to consistently surpass the key 10% level, the structural hedge should be a healthy income tailwind and while the investment banking arena continues to look dicey, green shoots are emerging.”