Barclays beats profit forecasts but warns of tough times ahead

A Barclays sign outside one of the bank's branches in London, Britain

Barclays reported stronger than expected third-quarter results on Friday as its consumer businesses swung back into profit and lousy loan provisions fell. However, the bank warned that the economic outlook was getting worse.

Barclays is the first central British bank to report third-quarter earnings, and analysts and investors are watching results closely for any signs of an expected wave of bad loans due to the fallout from the COVID-19 pandemic.

Barclays reported profit before tax of 1.1 billion pounds for the three months to the end of September, almost double the 507 million pounds analysts had forecast.

Barclays shares jumped following its results and were trading 4.6% higher at 0735 GMT.

The bank booked 608 million pounds in provisions for bad loans and other charges, down 63% from the previous quarter and well below the 1 billion pounds analysts had expected.

However, Barclays said it was considering further cost-cutting measures, which could result in more charges.

The bank said its consumer, cards, and payments business made a profit of 165 million pounds in the quarter after a second-quarter loss as U.S. credit card spending recovered.

The stronger-than-expected results boosted the bank’s core capital ratio, a key measure of its financial strength, to 14.6%, which was also above forecasts for 14%.

Joseph Dickerson, the banking analyst at Jefferies, said the strong results were likely to lead to upgraded full-year forecasts for Barclays after all three of the bank’s business divisions delivered revenues ahead of expectations.

The lender’s investment bank supported its results, as it has done in recent quarters, in a fillip for Chief Executive Jes Staley, who has staked much of his credibility on the business at a time when some shareholders want it to cut back.

Revenue from its markets division, which has benefited from frenzied trading amid volatile markets worldwide, rose 29% from a year earlier to 1.69 billion pounds. Equities trading jumped 40% to 691 million pounds while fixed income, currencies, and commodities rose 23% to 1 billion pounds.

Like its rivals, Barclays has halted dividend payments at the request of Britain’s regulators. It said it would give an update on its payout policy when it reports full-year results.

In common with other banks worldwide, Barclays has set aside billions of dollars in provisions for loans expected to go bad as the economic downturn from the COVID-19 pandemic hits both business and retail borrowers.

Despite its strong third quarter, Barclays downgraded its baseline economic forecast for the United Kingdom this year as a slew of local lockdowns kicks in to control the second wave of COVID-19 heading into the winter months.

The bank now expects the gross domestic product to fall 10.3% this year, worse than its June forecast of an 8.7% drop, but it said there had been no significant rise in bad loans so far due to government financial support for jobs and companies.

“We remain concerned that, over time, impairments will be worse than expected for the industry – unless there is an effective widely accessible vaccine soon, said John Cronin, banking analyst at Goodbody.

U.S. banks, which reported earnings earlier this month, gave a muddied picture of what to expect, with balance sheets looking healthier than expected. Still, executives forecasting a gloomy outlook for losses from loans.

Barclays’ British rivals all report earnings next week, with HSBC HSBA.L on Tuesday, Standard Chartered STAN.L and Lloyds Banking Group LLOY.L on Thursday, and NatWest Group NWG.L on Friday.

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