Barclays Lifts Net Interest Income View After Earnings Beat Expectations — Update

By Elena Vardon

Barclays raised its net interest income guidance for 2024 after its second-quarter earnings beat expectations, and launched a 750 million-pound ($964.2 million) share buyback.

The British lender on Thursday posted a pretax profit for the three months ended June 30 of GBP1.94 billion compared with GBP1.96 billion a year earlier, surpassing expectations of a GBP1.56 billion result taken from a company-compiled consensus.

The bank's total income edged up to GBP6.32 billion from GBP6.285 billion a year prior, beating estimates of GBP6.16 billion. Its investment bank--which brings in around half of group revenue--saw a 10% on-year rise in income driven by higher banking fees and its equities business as activity recovered from last year's depressed levels, making up for weaker performance in fixed income, currencies and commodities.

Along with higher income from its private bank and wealth-management division and its U.S. consumer bank, this helped offset lower but better-than-expected revenues from Barclays UK and its corporate bank in its home country.

As interest rates have stayed higher for longer than initially anticipated and deposit migration has stabilized, Barclays nudged up guidance for net interest income--the difference between what banks earn on loans and what they pay clients for deposits--for the group excluding its investment banking and its head office to around GBP11.0 billion for the year from GBP10.7 billion.

A GBP6.3 billion net interest income contribution is now expected from Barclays UK--compared with GBP6.1 billion before. This figure excludes its acquisition of the banking operations of grocer Tesco, which is set to close in November.

"We are making good progress on our three-year plan," Chief Executive C. S. Venkatakrishnan said.

The executive unveiled a reinvigoration plan back in February which featured a renewed focus on lending to British households and businesses, leaning away from Wall Street by capping the share of assets devoted to its investment-banking arm. He also promised to boost shareholder returns and slash costs.

On Thursday, the group reiterated 2024 outlook for other metrics and its guidance for 2026. This includes a return on tangible equity--or ROTE, a key profitability measure--of over 10% this year, which it expects to rise to over 12% in 2026.

Second-quarter ROTE was 11.1%, suggesting that the annual target is increasingly within reach though analysts at Citi caution that the metric might be lower in the second half of the year given revenue seasonality, a fourth-quarter bank levy and a normalization in provisions from very low levels.

"Given one of the key investor concerns around the group's medium-term targets is around the reliance on topline growth, we think that the strong beat in topline in the two main divisions will be taken positively," JP Morgan Cazenove analysts said in a note, referring to its investment banking and Barclays UK arms.

Shares continued their steady climb since the start of the year and traded in the green in early trade in London, hitting as high as 242 pence--their highest price in more than seven years--on Thursday morning. The stock has gained more than 50% year to date, and should continue its upward trajectory on the back of this update, according to analysts.

Barclays closed the quarter with a common equity Tier 1 ratio--a key measure of balance-sheet strength--of 13.6%, below consensus's 13.8% but still in the upper half of management's 13% to 14% guidance range.

On top of the share buyback program, which was in line with expectations, the board declared an interim dividend of 2.9 pence a share.

Write to Elena Vardon at elena.vardon@wsj.com

(END) Dow Jones Newswires

August 01, 2024 05:11 ET (09:11 GMT)

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