Barclays Q3 beats expectations despite rise in impairments

26th Oct 2022 07:03

(Sharecast News) - Barclays Bank reported a better-than-expected rise in third quarter profits despite a sharp rise in bad loan charges as consumers started to feel the impact of the cost-of-living crisis.

The company on Wednesday posted a profit before tax of £1.97bn compared with a £1.86bn a year earlier and against a company-compiled consensus of £1.81bn.

Impairment charges for the quarter rose to £381m an increase on the £120m a year ago. On a nine-month basis the charge for potential bad debts rose to £722m compared with a £622m release last year when pressure from the Covid pandemic eased.

Group income rose 17% to £6.4bn, driven by increases in interest rates. Net profit for the quarter was up to £1.51bn, up from £1.37bn.

Net interest margin, the difference between rates on loans and deposits, reached 2.78%, from 2.53% a year before.

The surge in profits comes as central banks increase interest rates in an attempt to stymie runaway inflation. The Bank of England has lifted rates from all-time lows of 0.1% last year to 2.25% with UK inflation hitting 10.1% last month.

Income at Barclays bond trading division soared to £1.5bn, largely due to turmoil caused by the UK government's disastrous mini-budget last month and reflecting "higher levels of activity as we supported our clients through a period of market volatility".

The bank has been labouring under the weight of a trading blunder that saw it agree a penalty of $361m with US regulators for what they described as "staggering" failures that led the bank to oversell nearly $18bn worth of investment products, which has in the year to date cost it £600m.

Richard Hunter, head of markets at Interactive Investor said the strength of the quarter "repairs some of the dents from the year, but the outlook remains inevitably cloudy".

"The ongoing impacts of inflation, a possible global recession depending largely on the aggression of central bank rate rises and the deterioration of real incomes all have the potential to upset the apple cart further. The US over-issuance debacle could prompt some governance concerns, and the coming months are likely to provide further stern challenges."

"However, the general view remains positive, and the recently completed £500m share buyback and a dividend yield of 4.2% are indicative of a generous shareholder return programme enabled by strong cash generation. As such, the market consensus of the shares as a 'buy' is likely looking through today's challenges to the potential rewards of tomorrow, with the benefits of diversity overcoming adversity."

Reporting by Frank Prenesti for Sharecast.com