A week ahead of the budget, high street lender Barclays (LON:BARC) published Q3 earnings which fell short of forecasts. With talk of the chancellor increasing taxes on windfall bank profits, the timing was fortuitous, even if the results weren’t.
Profit falls short of expectations
For the three months to September, Barclays posted a pre-tax profit of £2.32 billion. That represented an 11.5% increase on last year’s figure, but fell short of the company-compiled consensus of £2.42 billion.
Part of the miss was due to revenue missing estimates, with a 3.6% rise to £7.37 billion coming in short of the £7.62 billion consensus. The other part was due to the investment banking business, where income of £3.1 billion was light of the £3.3 billion consensus.
Like many of its Wall Street peers, Barclays disappointed in terms of FICC (fixed income, currency and commodity) revenue, which fell 19%. Fortunately, equity trading revenue was up 47% instead of 37% as forecast, saving the bankers’ blushes.
UK consumer banking performed steadily, with returns of 21% on a 4% increase in income. US consumer banking, however, saw returns fall from 13.5% to 9.1% due to integration costs of the Egg acquisition.
Are windfall profits in the firing line?
There has been speculation for some weeks John Healey will increase taxes on windfall profits in the banking sector. The chancellor calls them the ‘crown jewels’ of the economy, but executives expect the sector to be on the agenda in next week’s budget.
The surcharge on windfall banking profit was originally set at 8% but was lowered to 3% in 2023 under the Conservative government. Raising the rate to 8% again would raise around £2 billion by most estimates.
Countering bankers’ pleas, analysts point to the £45 billion public bailout of the banks during the 2008 financial crisis. The Treasury finally sold the last of its shares in NatWest Group (LON:NWG) in May last year.
Barclays has been the worst performer of the big three UK banks with a 12% decline in its shares year-to-date. By comparison, NatWest shares are down 2% this year and Lloyds’ (LON:LLOY) are up 3.5% this year.
The third quarter has been particularly brutal for Barclays shares, possibly as expectations for trading gains fell for the whole sector. Of the big UK banks, Barclays has by far the largest exposure to trading and markets.
Today’s results weren’t bad, they just didn’t live up to expectations. However, Barclays also eased the pain with another £500 million buyback which we suspect is why the shares are flat on the day.
