Barclays profit falls 26 but beats forecasts

Barclays beat market expectations on Wednesday when the UK bank reported a 26% fall in underlying pre-tax profits for the three months to the end of September. At the same time, the bank also kept its provisions for PPI miss-selling unchanged, setting a starkly different tone to that of Lloyds who yesterday increased provisions by another £750m.

Underlying pre-tax profits came in at £1.4bn, a sharp fall from £1.9bn for the same quarter a year ago but this beat the median of market expectations in the City of London, which stood at £1.25bn.

Tier 1 capital ratio also improved to 9.6%, the bank said, which has benefited from the funds raised in the successful £5.8bn rights issue.

Weakness at Investment Bank

A key on-going concern for Barclays’ shareholders is performance at the banks investment banking operations. Investment banking income fell 7% to £8.58bn which was weighted by a drop in fixed income as traders and clients alike sought to put their money into stocks. Weak performance in investment banking is a key handicap in the banks ability to return to the sorts of profits, and ultimately dividends, that its shareholders grew used to before the financial crisis. Investment banking contributed to 57% of the banks total profits for the quarter. For the same quarter a year ago, it was 52%. So the weakness in investment banking is growing in influence on the banks total performance.

At the same time and perhaps this has greater PR implications is the fact that Barclays is keeping its PPI provisions (£3.95bn) unchanged. There had been fears that this may increase following Lloyds, who have set aside the most for PPI claims in the industry, increased their own provisions by £750m, with their total pot now standing at £8bn. So in this sense, there may be somewhat of a relief that PPI claims, for now, may no longer continue to hurt the bottom line for Barclays.

Barclays shares

Barclays shares traded at strong support levels of just above 250p-255p this week and these levels have over the past nine months attracted buyers who have picked up the stock at these lower price levels.

Shares have been in a consolidation phase for much of the year with many traders choosing to swing trade shares between the low and higher ends of this consolidation range.

For positive momentum to restart, we need to see Barclays shares close above 305p on a consecutively weekly basis.

A drop below 250p would however be concerning and could open up a broader corrective move to 230p and 200p.