It’s been a solid earnings season so far for FTSE 100 banking earnings, and Barclays has done nothing to break the mould with stronger than expected earnings pleasing investors on Thursday.
Barclays enjoyed improving net interest margins in the second quarter across most business units in the second quarter culminating in a group net interest margin (NIM) of 4.2% compared to 4.12% in the first quarter.
Stronger NIMs will be welcome news for investors in the face of money markets positioning for interest rate cuts and the pressure of increased competition.
“Banks are booming, and Barclays has joined the party,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
“Second quarter results pretty much beat across all lines. As we’ve seen from peers, Barclays continues to call out the strong UK borrower with low missed credit card payments, good mortgage quality, and an improved economic outlook all helping to keep those pesky impairment charges down. Barclays also has a huge US card business, and impairments were also better than expected, but our friends across the pond are under a little more pressure and write-offs have been ticking higher.”
A key differentiator for Barclays is its investment banking arm, which can provide a welcome boost to underlying income as capital markets activity picks up.
Although global capital markets are still well below their peak, deal flow has increased, helping Barclays Investment Banking income rise 10% in the second quarter.
The Investment Banking unit is by far Barclays’ largest single unit in terms of revenue and was the key driver in group revenue increasing in the second quarter.
“Barclays Investment Banking revenue beat is positive for mid-term targets, our specialists argue that the 50% IB RWA target needs to be achieved through top-line revenue growth and this seems like a step in the right direction,” said Max Georgiou, Analyst at Third Bridge.
“To continue executing this strategy we expect to see a continued focus on regrowing share in the US market. The risks within this are potential human resources attrition from lay-off rounds and lower additional compensation and challenges in reaching high fee floors across completed advisory work.”
Rounding off an all-round solid update for Barclays, the bank announced a fresh £750m share buyback programme in addition to a 2.9p dividend for the first half.