Barclays (BCS) Q2 Earnings Decline Y/Y, Revenues & Costs Rise

Barclays BCS reported second-quarter 2022 net income attributable to ordinary equity holders of £1.07 billion ($1.35 billion), down 47.7% from the prior-year quarter.

Notably, the results for the first half of 2022 were impacted by a £0.6 billion worth of net of tax charge related to the over-issuance of securities in the United States.

The £0.6-billion impact of the over-issuance of securities comprises £0.4 billion post-tax expected net impact of the rescission offer losses, driven by £1.3 billion of costs as a result of market movements and interest, substantially offset by £0.8 billion of income from hedging arrangements. The remaining £0.2 billion relates to an estimated monetary penalty from the SEC.

Barclays’ quarterly results were hurt by a rise in expenses. In the reported quarter, the company recorded credit impairment charges against releases in the prior-year quarter. Nevertheless, a rise in revenues aided the results to some extent.

Revenues Improve, Expenses Rise

Net operating income was £6.51 billion ($8.18 billion), up 4.8% year over year. Higher net interest income, and net fee, commission and other income drove the rise.

Operating expenses (excluding litigation and conduct costs, and UK bank levy) totaled £3.68 billion ($4.63 billion), up 2.6% year over year.

The cost-to-income ratio was 75%, up from 69% a year ago.

In the reported quarter, Barclays recorded credit impairment charges of £200 million ($251.4 million) against credit impairment releases in the year-ago quarter.

Pre-tax income was £1.50 billion ($1.89 billion), down 40.1% year over year.

Segmental Performance Weak

Barclays UK: Profit before tax was £623 million ($783.2 million), down 40.4% from the year-ago quarter. The decline was due to a fall in net operating income and higher expenses.

Barclays International: Profit before tax was £1.06 billion ($1.33 billion), down 41.2% year over year. The fall was due to the weak performance of the consumer, cards and payments division as well as the corporate and investment bank division.

Head Office: Loss before tax was £180 million ($226.3 million), narrower than the loss incurred in the prior-year quarter.

Balance Sheet & Capital Ratios Strong

Total assets as of Jun 30, 2022, were £1,589.2 billion ($1,930.2 billion), up 6.2% from the prior-quarter end.

Total risk-weighted assets increased 4.8% from the prior quarter to £344.5 billion ($418.4 billion) as of Jun 30, 2022.

As of Jun 30, 2022, the Common Equity Tier 1 (CET1) ratio was 13.6%, down from 13.8% as of Mar 31, 2022.

Guidance

Management expects impairment charges to remain below the pre-pandemic levels in the coming quarters, given the reduced unsecured lending balances and existing coverage ratios.

Given the £1.3 billion of litigation and conduct charges in the second quarter of 2022, and the appreciation of the average U.S. dollar against the pound, Barclays expects total operating expenses of £16.7 billion for 2022, up from the previously stated £15 billion.

Over the medium term, the CET1 ratio is expected to be 13-14%.

Barclays expects to deliver a return on tangible equity of more than 10% in 2022 and a cost-to-income ratio of less than 60% in the medium term.

Our View

Given Barclays’ restructuring and business-simplification efforts, its operating efficiency is expected to improve in the quarters ahead. However, given the tough operating backdrop, revenue growth might get hampered 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 #4 (Sell).

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

Performance of Other Banks

Synovus Financial Corp. SNV reported second-quarter 2022 adjusted earnings per share of $1.17, beating the Zacks Consensus Estimate of $1.10. However, the bottom line declined 2.5% from the prior-year quarter’s reported number.

Synovus Financial’s results were affected by escalating expenses and a fall in fee income. Nonetheless, it recorded a rise in net interest income, net interest margin, total loans, and a significant decline in non-performing loans and assets.

Regions Financial Corporation RF reported second-quarter 2022 earnings of 59 cents per share, beating the Zacks Consensus Estimate of 53 cents. However, the results compare unfavorably with the prior-year figure of 77 cents.

Regions Financial’s results were driven by a rise in fee income and net interest income. Average loan and deposit balances improved. However, rising expenses and provision for credit losses affected the bottom line.

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