Hargreaves Lansdown and Barclays weighed on the FTSE 100 on Wednesday after the financial companies provided disappointing earnings updates sending their respective shares into a tailspin.
Barclays shares were down 10% after the company said impairment charges and litigation costs were instrumental in a 14% drop in profit before tax to £7bn.
Total income was higher during the 2022 full year period due to higher interest rates, but the cost incurred due to trading mistakes and worsening economic conditions more than erased top line growth.
“Barclays has bitterly disappointed the market with its full year numbers. Profits have been stunted partly because of a big increase in litigation costs relating to the over-issuance of US securities. This costly mistake has been known about for some time, but these are now the hard consequences biting the bottom line,” said Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown.
Barclays poor update also rocked Lloyds and Natwest shares, down 3.2% and 2.3%.
Hargreaves Lansdown
Hargreaves Lansdown results for the six month ended 31st December were positive by many measures. Higher interest rates helped revenue grow 20% and the company increased active clients by 31,000 in the last half year. However, levels of net new business fell by 30% to £1.6bn and assets under administration fell 10% to £127bn suggesting underlying weakness in their investment business.
Hargreaves shareholders will enjoy a 3.6% increase in the half year dividend to 12.7p, but concern about lower new business and client assets hit shares.
Hargreaves Lansdown shares fell 6% and were the second biggest FTSE 100 faller behind Barclays.
UK inflation
UK inflation eased slightly in January and today’s 10.1% CPI reading acted as a counterbalance to weakness in the FTSE 100’s financial companies.
“Today’s UK CPI inflation data was followed by a sharp pullback in the pound as it added to the potential of a more dovish BoE as investors carefully follow any developments which may indicate the future steps of the central banks policy. GBPUSD pair retreated below 1.21 and is attempting to recover from this area,” said Walid Koudmani, Chief Market Analyst at online investment platform XTB.com.
With weakness in the pound, one would expect to see strength in the FTSE’s overseas earners. Shell, Diageo, BAE Systems, and BP provided some support for the index with minor gains.
Housebuilders also rallied on hopes lower inflation data would lead to easier monetary policy from the Bank of England and help the ailing UK property market.
The FTSE 100 was trading at 7,964, up 0.1%, at the time of writing.