Barclays traders beat estimates as uncertainty freezes deals

BARCLAYS’ traders beat estimates in the third quarter, offsetting steep declines for its investment bankers as growing economic headwinds keep deals on the sidelines. 

Trading revenue rose 45 per cent to £2.26 billion (S$3.7 billion), ahead of its Wall Street rivals and more than the estimate of £1.76 billion, according to a statement Wednesday (Oct 26). This excludes some hedging losses tied to its mistakenly issued securities earlier this year. 

Investment banking fees fell 45 per cent to £533 million, missing estimates and broadly in line with declines at other firms. 

The British bank’s domestic unit was boosted this quarter by rising interest rates that sent income up 17 per cent, although the group also increased charges against potential loan losses by £381 million due to the “deteriorating macroeconomic forecast”. The bank is yet to see any signs of stress at its consumer businesses, chief executive CS Venkatakrishnan said in a call with journalists.

The results echo Wall Street’s top firms, which were also lifted by consumer banking as higher interest rates helped drive up net interest income. That windfall – revenue collected from loan payments minus what depositors are paid – has proved particularly helpful at a time when investment bankers have been idled by skittish markets.

The results “suggests strength in UK banking”, Jefferies analyst Joseph Dickerson wrote in a note.

Still, the bank’s baseline assumptions for the economy have all declined in the past three months, with the lender now expecting 0.3 per cent annual growth in UK gross domestic product next year, down from 1.7 per cent.

“We are ready to provide support for customers and clients facing an uncertain economic environment and higher cost pressures,” Venkatakrishnan said in the statement.

Barclays shares were flat in early trading in London.

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Barclays said the total financial cost of the clerical error that saw it fail to register billions of dollars worth of securities was £722 million, roughly in line with a previous disclosure. The blunder saw it pay a US$200 million fine and carry out a so-called rescission programme to buy back securities it mistakenly issued, which it completed in September.

Trading revenue from fixed income, currencies and commodities rose 93 per cent to £1.5 billion, beating the estimate of £1.04 billion. Equities trading revenue fell 6 per cent to about £700 million, excluding the rescission costs. The changes were flattered by a plunging pound. On a US dollar basis fixed income, currencies and commodities (FICC) were up 63 per cent and equities fell 21 per cent.

Jonathan Tyce, BI banking analyst with Bloomberg Intelligence, said: “Barclays’ record FICC performance, beating by £500 million and rising 63 per cent in dollar terms, is the pick of the bunch after US reporting set a solid tone.”

The third-quarter results effectively mark Venkatakrishnan’s first year in charge after replacing Jes Staley, who abruptly stepped down last November amid a Financial Conduct Authority investigation into his ties to financier and sex offender Jeffrey Epstein. BLOOMBERG