High street lender Barclays (BARC) posted disappointing earnings for Q1 due to a rise in bad loan charges. The shares slumped 5p or 4.5% to 109p in early trading, taking losses to 14% year-to-date.
Impairments to blame
For the three months to March, the bank reported net interest income of £3.74 billion, slightly above the £3.41 billion consensus. Similarly, Q1 net fee income of £4.43 billion was slightly ahead of the £4.28 billion forecast.
However, group operating costs of £4.55 billion were above the £4.46 billion forecast partly due to higher motor finance claims. Also, credit impairment charges of £823 million were well above estimates, up 54% on Q4 2025 and 28% on Q1 2025.
The loan loss rate jumped to 0.74% from the 0.5% to 0.6% target range due to a £228 million charge. The charge originated in the investment banking business, and means the FY26 loan loss rate will be close to 0.6%.
Traders dip out
At the same time, the investment bank seems to have missed out on the Q1 trading frenzy in global markets. As a result, profit before tax was £2.81 billion, slightly below the consensus of £2.83 billion.
To mollify investors, the bank announced another £500 million share buyback following on from the current £1 billion programme. It also stuck to its financial targets including a RoTE (Return on Tangible Equity) of over 14% in FY28.
The bank didn’t name the source of the bad loan provision but the market has pinged MFS, the failed property lender. Estimates of Barclays’ total exposure to MFS range from £500 million to £600 million in total.
This was precisely the issue we flagged in our look ahead to today’s results, so in a way we’re pleased. However, for investors it will raise concerns over the bank’s credit controls and the quality of some of Barclays’ loans.
Also, there are questions over why the investment bank didn’t perform better compared with its rivals. Everyone else on Wall Street made a killing last quarter thanks to the Middle East crsis and the spike in market volatility.
Having been the darlings of the market for two years, it feels to us like the UK banks have had their time. If the economy slows and businesses and consumers start to struggle, sooner or later that will feed into their results.
Read the press release here: https://home.barclays/investor-relations/
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