A branch of Barclays Bank is seen, in London, Britain, February 23, 2022. REUTERS/Peter Nicholls/File Photo Acquire Licensing Rights
LONDON, Oct 24 (Reuters) – Barclays (BARC.L) hinted at major cost cutting to come later this year, as it reported a third quarter profit that narrowly beat expectations but flagged pressure on its margins from competition for savers.
The British lender reported pretax profit for the period of 1.9 billion pounds ($2.33 billion) on Tuesday, down from 2 billion pounds a year ago but above consensus analyst forecasts of 1.77 billion pounds.
Barclays, facing a downbeat outlook for interest margins especially in Britain, said it is “evaluating material structural cost actions” to help improve returns, which could incur hefty charges as soon as the fourth quarter this year.
“These results are likely to lower market expectations further for UK banks, and we see a negative read-across for Lloyds and Natwest,” banking analysts at JPMorgan said in a note, citing the margin pressures flagged by Barclays.
The bank held off on any unscheduled returning of excess capital to shareholders, following a 750 million pound buyback in July that helped take the sting out of disappointing half-year results.
Barclays chief executive C. S. Venkatakrishnan said the bank would provide an investor update alongside its full-year results that will set out its capital allocation priorities and revised financial targets.
The bank said its net interest margin, a key measure of profitability, in its British retail bank would now likely come in at between 3.05%-3.1%, below previous guidance of around 3.15%, as political pressure to help savers and sticky inflation curb profits from lending.
The lender’s shares dipped earlier this month after Venkatakrishnan hinted at the bearish outlook for bank sector earnings, warning of pressure on returns from peaking interest rates and muted investment banking activity.
Barclays beat forecasts partly due to a robust performance in its mainly U.S.-based credit cards business.
But it set aside an extra 433 million pounds in the quarter for potentially soured loans, citing updated tougher economic forecasts and an increase in delinquencies in its U.S. cards unit to pre-pandemic levels.
Barclays reported a 6% drop in income at its investment bank for the quarter, following a similarly downbeat performance at the half-year results update in July.
Revenue in its traditionally strong fixed income, currency and commodities division fell 13% as falling market volatility dampened clients’ enthusiasm for trading.
($1 = 0.8151 pounds)
Reporting By Lawrence White and Iain Withers; Editing by Kirsten Donovan
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