Barclays – Expensive Trading Mistakes And Weaker Than Expected Performance

Published on

Barclays PLC (LON:BARC)’s income rose 14% to £25.0bn for the full year. That reflects growth in all business divisions, with particularly strong growth in Consumer, Cards and Payments. In Barclays UK, the net interest margin, which shows the difference between what a bank earns in interest on loans and pays on deposits, was 2.86%, up from 2.52%.

Profit before tax was 14% lower at £7.0bn, this included a £1.2bn impairment charge, reflecting the weakening economic outlook. Profits were also impacted by £1.6bn of litigation and conduct charges relating to the mis-selling of US securities. Overall performance was worse than the market was expecting, led by the Corporate and Investment Banking division.

Get The Full Henry Singleton Series in PDF

Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q4 2022 hedge fund letters, conferences and more


The group’s cost:income ratio, an important efficiency measure, was 67% and in-line with last year. This is expected to come down to the low sixties in 2023.

A 5.0p full year dividend was announced, taking the total to 7.25p per share. A new £500m share buyback was announced.

The shares fell 8.3% following the announcement.

Barclays' Earnings

Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown:

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.

Barclays is more than able to stomach this financially, the wider-reaching difficulties come from reputational damage. The tolerance margin for a similar mistake is now very thin.


The challenges don’t stop there. Barclays has a sizeable investment banking business, which is being hit by lower fees, due to a natural fall out from tough market conditions. £1.2bn has also been squirrelled away to help prepare for an increase in bad debt as the macro-economic environment remains shaky and question marks remain about consumer spending, or rather repayment, power.

Should global economic conditions turn out better than expected, those impairment charges can be flipped into releases, which would boost profits. While the mood music has brightened in recent days where the economy’s concerned, there are still plenty of variables at play that could derail things.

Over the longer term Barclays’ diverse income streams set it apart from others, and the structural changes to interest rates should benefit the bank for some time. In the shorter-term the market needs more convincing that it’s on the right track, and concerns haven’t been allayed by the new £500m share buyback.

Given the group’s capital position, there’s definitely an argument that more money could be funnelled back to shareholders.