Big Bounce Back Continues At Barclays But Investors Fret About Rising Costs

Updated on

“The big bounce back at Barclays PLC (NYSE:BCS) (LON:BARC) is continuing with pre-tax profits more than doubling in the first quarter to £2.4 billion. Given the upbeat theme running through these results, the best may be yet to come but concerns are mounting about rising operational costs at the bank. It’s this niggling worry which appears to have contributed to a slide in the share price in early trading today by around 5%.

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Q1 2021 hedge fund letters, conferences and more

Barclays Flexing Its Trading Muscles

With a brisk economic recovery emerging, charges for bad loans came in much lower than expectations, with a big drop in the first quarter to £55 million, down from £2.1 billion during the same period, at the miserable depths of the crisis last year.

Barclays has been flexing its trading muscles during the pandemic, but its corporate and investment bank showed a little less might over the quarter, with total income inching down by 1% as revenues from trading bonds, currencies and commodities fell by 35%.

The equity trading boom continues, showing up in a bonanza 65% rise in income and also helping boost profits for its banking advisory business.

Barclays Investment Arm Is Providing The Financial Cushion

While shares trading activity isn’t expected to continue at such a frenzied pace, Barclays investment arm is clearly still providing the financial cushion needed as its consumer business finds its feet again.

The bank’s rich data vaults already show an optimistic outlook in terms of consumer spending with the expectation that we will start piling into the mountains of savings amassed over the past year. A consumer splurge is adding to hopes that interest rates could start ticking up, providing a boost to its lending business.

Although confident chinks of light are shining through the trees as the recovery continues, Barclays isn’t completely out of the pandemic woods yet. The cost to income ratio, measuring how money it takes to run operations, compared to income, has risen to 61%. The worry is that it could drift even higher as Covid expenses and costs relating to a review of its branch network are expected to mount up. Keeping a lid on spending is set out as a priority but there is uncertainty about just how tight the reins will be pulled.’’

Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown

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