Barclays (BCS) Q1 Earnings & Revenues Decline Y/Y, Costs Fall

Barclays’ BCS first-quarter 2020 net income attributable to ordinary equity holders of £605 million ($774.6 million) represents a decline of 41.7% from the prior-year quarter’s reported number.

Results were primarily hurt because of a significant increase in credit impairment charges. Also, the company witnessed a decline in the top line. Nevertheless, marginally lower operating expenses along with a strong balance sheet position were tailwinds.

Revenues & Expenses Decline

Net operating income was £4.17 billion ($5.34 billion), down 13.2% year over year. The decline was mainly due to an increase in credit impairment charges.

Operating expenses (excluding litigation and conduct costs) totaled £3.25 billion ($4.16 billion), down marginally from the year-ago quarter.

Cost to income ratio was 52%, down from 63% recorded a year ago.

Credit impairment charges increased significantly year over year from £448 million ($583.7 million) to £2.12 billion ($2.71 billion).

Pre-tax income was £913 million ($1.17 billion), down 38.4% from the year-ago quarter.

Quarterly Segment Performance

Barclays U.K.: Income before tax was £195 million ($249.7 million), down 66.7% from the year-ago quarter. Rise in operating expenses and lower operating income resulted in the decline.

Barclays International: Profit before tax was £822 million ($1.05 billion), down 26.5% year over year. The decline was mainly due to the dismal performance of the consumer, cards and payments division.

Head Office: Loss before tax was £104 million ($133.2 million), narrower than the loss of £220 million ($286.6 million) incurred in the prior-year quarter.

Strong Balance Sheet & Capital Ratios

Total assets as of Mar 31, 2020, were £1,444.3 billion ($1791.9 billion), up 26.7% sequentially.

As of Mar 31, 2020, Common Equity Tier 1 ratio was 13.1%, up from 13.0% on Mar 31, 2019.

Total risk-weighted assets were £325.6 billion ($404 billion) as of Mar 31, 2020.

Capital Deployment Update

In order to maintain liquidity amid the coronavirus-induced crisis, the company has suspended its capital deployments as of now.

Outlook

Barclays continues to target return on tangible equity of more than 10% for 2020.

Management expects CET1 ratio of less than 13.5%, going forward. Further, cost-to-income is projected to be less than 60%.

Our View

Given Barclays’ restructuring and business simplification efforts, its operating efficiency is expected to improve in the quarters ahead. However, owing to a tough operating backdrop and the coronavirus-induced global economic slowdown, revenue growth is expected to be hampered to some extent in the near term.

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

Performance & Upcoming Release Date of Other Foreign Banks

UBS Group AG UBS reported first-quarter 2020 net profit attributable to shareholders of $1.6 billion compared with $1.14 billion in the prior-year quarter. Performance was supported by higher net interest income along with rise in net fee and commission income. However, higher expenses were dragging.

HSBC Holdings’ HSBC first-quarter 2020 pre-tax profit of $3.2 billion represents a decline of 48% from the prior-year quarter’s reported number. The reduction primarily reflects the adverse impact of the coronavirus outbreak and the weakening of oil prices.

Itau Unibanco Holding S.A. ITUB is expected to report quarterly results on May 4.

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