Barclays Disappoints in 3Q - Analyst Blog

By Zacks | November 01, 2012 AAA

Barclays PLC (BCS) reported net operating income of £6,047 million ($9,551 million) for third quarter 2012 (ended September 30, 2012). This reflects a decline of 3.8% from net operating income of £6,238 million ($9,853 million) reported in the prior quarter.

Huge statutory losses were the primary reason behind the poor financial performance, which was partly offset by lower operating expenses. However, performances of few segments - Wealth and Investment Management, Europe Retail Banking Business and Investment Bank - were credible. Further, capital ratios were strong in the quarter.

Performance in Detail

Adjusted profit before tax fell 3.1% on a sequential basis to £1,727 million ($2,728 million) from £1,782 million ($2,815 million). The fall was driven by lower levels of net operating income as well as other income.

However, statutory loss after tax recorded in the quarter stood at £47 million ($74.2 million) compared with statutory profit of £1,234 million ($1,949 million) in last quarter. The substantial dip was mainly due to adjustments for provision for Payment Protection Insurance (PPI) redress and own credit.

Operating expenses (excluding UK bank levy) for the quarter totaled £4,341million ($6,857 million), down 4.4% from the prior quarter. Cost to income ratio stood at 87% as against 69% in the previous quarter.

Business Overview

UK Retail Banking Business: Adjusted profit before tax for the quarter came in at £400million ($631.8 million), down 3.0% from the last quarter. Further, loans and advances to customers stood at £126.0 billion ($199.0 billion), up 2.0% from the prior quarter. Customer deposits inched up 0.5% sequentially to £114.5 billion ($181 billion).

Europe Retail Banking Business: Loss before tax for the quarter came in at £59 million ($93.2 million), up 20.0% from the last quarter. However, loans and advances to customers stood at £40.1 billion ($63.3 billion), down 3.0% from the prior quarter. Also, customer deposits inched down 3.0% sequentially to £18.1 billion ($28.6 billion).

Africa Retail Banking Business: Profit before tax for the quarter came in at £56 million ($88.5 million), plunging 42.0% from the last quarter. Further, loans and advances to customers stood at £32.5 billion ($51.3 billion), down 5.0% from the prior quarter. Customer deposits marginally dipped 2.0% sequentially to £21.9 billion ($34.6 billion).

Barclaycard: Adjusted profit before tax for the quarter came in at £397 million ($627.1 million), down 2.0% from the last quarter. Loans and advances to customers stood at £30.9 billion ($48.8 billion), climbing 1.0% from the prior quarter. Customer deposits jumped 20.0% sequentially to £2.4 billion ($3.8 billion).

Investment Bank: Profit before tax decreased 6% sequentially to £937million ($1,480 million).

Corporate Banking: Adjusted profit before tax for the quarter came in at £98 million ($154.8 million), down 23.0% from the last quarter. Further, loans and advances to customers stood at £62.1 billion ($98.1 billion), down 3.0% from the prior quarter. However, customer deposits inched up 3.0% sequentially to £91.4 billion ($144.4 billion).

Wealth and Investment Management: Profit before tax for the quarter came in at £79 million ($124.8 million), surging 30.0% from the last quarter. Further loans and advances to customers stood at £19.9 billion ($31.4 billion), marginally rising 1.0% from the prior quarter. However, customer deposits inched up 4.0% sequentially to £52.2 billion ($82.5 billion).

Head Office and Other Operations: Adjusted loss before tax improved 33.5% to £181 million ($285.9 million) from a loss of £272 million ($429.6 million) in the preceding quarter.

Balance Sheet

Total assets as of September 30, 2012 came in at £1,599 billion ($2,526 billion), down 2.0% from £1,631 billion ($2,576 billion) as of June 30, 2012.

Total shareholders' equity came in at £64 billion ($101.0 billion), unchanged compared with the end of the last quarter.

Capital ratios

As of September 30, 2012, core tier 1 ratio stood at 11.2% as against 10.9% as of June 30, 2012. Total risk weighted assets came in at £379 billion ($599 billion), down 2.8% from £390 billion ($616 billion).

Our Viewpoint

Going forward, we expect Barclays' diversified business model and sound financial position to keep contributing to its overall growth in the future. Further, steady capital deployment activities will continue to reinforce investors' confidence in the stock. The possible litigation headwinds, arising from investigation of regulatory authorities, draw our concern. We are also concerned about the increasing competition, volatility in the global economy and the effects of the deepening Euro-Zone crisis.

Shares of Barclays retain a Zacks #3 Rank, which translates into a short-term Hold rating. Other Zacks #3 Rank bank stocks include Bank of America Corporation (BAC).



 

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