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Barclays profits slip amid mortgage squeeze

FTSE 100

A woman walks past a branch of Barclays bank on Wormwood Street in London, England, on July 26, 2019. Four major UK banks, including Barclays, are set to release interim figures over the coming days. Half-year results for Lloyds Banking Group are due out on July 31, for Barclays on August 1, for the Royal Bank of Scotland (RBS) on August 2 and for HSBC on August 5. (Photo by David Cliff/NurPhoto via Getty Images)
Barclays is bidding to restore investor faith in its universal banking business model (NurPhoto via Getty Images)

Barclays (BARC.L) has reported lower profits for the start of the year, as mortgage lending and deposits dipped and its investment bank underperformed.

Profit after tax dropped to £1.6bn in the first three months of 2024, compared with £1.8bn in the same period one year earlier, Barclays said in a results statement.

Pre-tax profits were down 12% to £2.28bn in the first three months of the year from £2.6bn a year earlier. Despite the drop, this is still slightly better than its own consensus forecast of £2.195bn.

Group income fell 4% to £7bn, while net interest margin – the difference between what the bank charges for loans and savings – fell to 3.09% from 3.18%.

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Meanwhile, its net interest margin (NIM), excluding the investment bank and head office, fell to 4.12% in the first quarter from 4.16% in the same period last year.

Read more: FTSE 100: Lloyds sees profits drop by 28%

UK operations were hit by "subdued mortgage lending amid lower market demand", while customer deposits declined on increased competition in savings accounts in the UK, according to Barclays.

It saw customer deposits dip by 2% driven by lower customer account balances, which the bank said reflected broader consumer trends.

Barclays’ investment bank stuttered in the first quarter, failing to meet its Wall Street rival's performance, with revenue from fixed income trading tumbling by 21%.

Barclays is aiming to restore its credibility with investors, after years of share price underperformance, clashes with activists over the role of its investment bank, and management turnover.

Chief executive CS Venkatakrishnan said: “We are focused on disciplined execution of the plan that we presented at our Investor Update on 20th February. We have now announced the sale of our performing Italian mortgage book and are investing in our higher returning UK consumer businesses, including through the expected completion of the Tesco Bank acquisition in Q424.

“We continue to exercise cost discipline and remain well capitalised with a Common Equity Tier 1 (CET1) ratio at the end of the quarter of 13.5%.”

Read more: Best UK mortgage deals of the week

Venkatakrishnan has set out a three-year plan to revive its share price in an overhaul that aims to save about £1bn by making the bank more efficient this year, and is targeting about £2bn worth of savings in total by 2026.

Will Howlett, financials analyst at Quilter Cheviot, said: “With a solid start to the year, Barclays is poised to reshape its valuation narrative and deliver on its promises to shareholders.”

The bank reaffirmed its pledge to return £10bn to shareholders between 2024 and 2026 through dividends and share buybacks.

Richard Hunter, head of markets at Interactive Investor, noted: “The shares have risen by 24% over the last year, compared to a gain of 1.9% for the wider FTSE100, including a strong rally of 42% over the last six months. The initial share price reaction to the numbers has also been positive and, with Barclays being a group with deep pockets and a diversified business model, the longer-term outlook remains one which continues to attract investors.

"As such, the market consensus of the shares as a buy is most likely to remain intact.”

Watch: Why Goldman Sachs is seeing its 'cleanest quarter in a while'

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