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Barclays (BCS) Q2 Earnings & Revenues Down Amid Brexit Woes

Zacks Equity Research

Barclays BCS reported second-quarter 2019 net income attributable to ordinary equity holders of £1.03 billion ($1.32 billion). This reflects a decline of 19% year over year.

Shares of Barclays on the NYSE risen nearly 1.7% in pre-market trading. Nonetheless, a full day trading will provide a better picture.

Results were adversely impacted by decline in revenues and higher operating expenses along with rise in credit impairment charges. However, a strong balance sheet position and unexpected improvement infixed income markets revenues (up 25%) acted as tailwinds.

Revenues Decline, Costs Rise

Net operating income was £5.06 billion ($6.50 billion), down 4% from the prior-year quarter. The decline was mainly due to lower net fee, commission and other income.

Operating expenses (excluding litigation and conduct costs) totaled £3.50 billion ($4.50 billion), up 6% from the year-ago quarter.

Cost to income ratio was 64%, up from 61%.

Credit impairment charges and other provisions surged 70% to £480 million ($616.9 million).

Pre-tax income was £1.53 billion ($1.97 billion), down 19% from the year-ago quarter.

Segmental Performance

Barclays U.K.: Profit before tax was £477 million ($613.1 million), down 27% from the year-ago quarter. Decline in operating income and higher operating expenses hurt the segment’s performance.

Barclays International: Profit before tax was £1.22 billion ($1.57 billion), down 6% from the prior-year quarter. The fall was mainly due weak performance in consumer, cards and payments division.

Head Office: Loss before tax was £169 million ($217.2 million), wider than loss of £58 million ($78.9 million) in the prior-year quarter.

Strong Balance Sheet and Capital Ratios

Total assets as of Jun 30, 2019, were £1,232.8 billion ($1,628.4 billion), up 3% sequentially.

As of Jun 30, 2019, Common Equity Tier 1 ratio was 13.4%, up from 13.0% on Jun 30, 2018.

Total risk-weighted assets were £319.1 billion ($421.5 billion) as of Jun 30, 2019.

Dividend Update

Barclays will be paying an interim dividend of 3 pence per share. Further, the bank added that the full year dividend is expected to be nearly three times this amount.

Outlook

The company targets to achieve return on tangible equity of greater than 9% in 2019 and more than 10% in 2020.

Given the challenging operating backdrop in first-half 2019, operating expenses (excluding litigation and conduct charges) are expected to be below £13.6 billion in 2019.

Our View

Barclays continues to face pressure on revenues due to low interest rates across the globe. Also, rise in operating expenses and uncertainty related to Brexit are near-term concerns for the company.

Barclays PLC Price, Consensus and EPS Surprise

 

Barclays PLC Price, Consensus and EPS Surprise

Barclays PLC price-consensus-eps-surprise-chart | Barclays PLC Quote

Currently, Barclays carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance & Earnings Date of Other Foreign Banks

Marred by significant restructuring costs, Deutsche Bank DB reported second-quarter 2019 net loss of €3.15 billion ($3.54 billion) against net income of €401 million in the year-ago quarter. Also, the German lender incurred loss before taxes of €946 million ($1.06 billion).

ICICI Bank’s IBN first-quarter fiscal 2020 (ended Jun 30) net income was INR19.08 billion ($276 million) against net loss of INR1.2 billion ($17 million) in the prior-year quarter.

HSBC Holdings HSBC is scheduled to announce results on Aug 5.

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