Barclays shares dropped in early trade on Thursday as investors booked recent gains for the bank following the announcement of Q4 and full-year 2024 results.
All in all, there was a lot to like in Barclay’s update. Profit was higher due to increased income and marginally lower costs. Impairments were fairly steady.
Net interest margins, a key indicator of profitability, rose to 4.28% in 2024 from 4.11% in 2023, excluding head office and investment bank activities. Given interest rates were expected to fall last year, the rise in net interest margins was a big win for the bank.
But all of this appears to have been baked into the Barclays share price cake, and the report offers little in the way of positivity about the outlook, and investors took the chance to bank gains, sending the stock down around 4%.
A further £1 billion share buyback and promise of £10 billion in share buybacks by 2027 was welcome news but failed to propel the stock higher. Perhaps investors were hoping for a little more from the bank.
“Early price action for Barclays looks a little harsh after the group set a decent benchmark for the banking sector, closing the year with an impressive final quarter as both its UK and Investment Banking arms delivered,” said HL’s Matt Britzman.
“Credit quality remains solid, with loan loss rates comfortably below target, and while there was a dip in the final quarter, stripping out the higher-risk business from the Tesco deal shows that credit performance actually improved. With more exposure to US consumer trends than most UK peers, stable US card default rates should also be reassuring for investors.”
Barclays’ Investment Bank is a big differentiator for the group when compared to the other FTSE 100 banks, and investors will be pleased to see 28% income growth in the unit during the fourth quarter.
“In Investment Banking, Barclays didn’t disappoint, surpassing profit expectations and seeing growth in fixed income and equities that outpaced even the US giants,” Britzman explained.
There will be a big focus on provisions for motor financing this banking earnings season, with investors quietly confident that the recent interventions by the UK government may result in better outcomes for the banks. Barclays wasn’t one of the most heavily involved banks, but it still made provisions for any potential redress.
“On motor finance, the bank set aside £90m in provisions, and with players like Close Brothers maintaining optimism, there’s growing hope that the impact won’t be as severe as first feared – Lloyds will be the key one to watch and the most exposed from the major UK banks,” Britzman said.