Shares in Barclays (LON:BARC) fell 5% despite the bank beating forecasts and raising its FY26 group income target. Investors appeared disappointed at the bank’s core UK performance which showed sluggish loan and deposit growth.
Beat and buyback overlooked
For the three months to June, Barclays reported group income of £8.3 billion against the consensus of £8.1 billion. However, net interest income of £3.4 billion was just in line with the consensus forecast. Income from the investment bank beat forecasts and made up for the lack of core growth.
At a divisional level, Barclays UK income rose 7% thanks to the bank’s ‘structural hedge’ on interest rates. This was partly offset by sluggish retail deposit growth and mortgage margin compression due to competition.
The US consumer division grew its income by 38%, helped by a £225 million gain on asset sales and a recent acquisition. However, this was lower than the 45% growth analysts had penciled in for the business.
CEO confident in hitting targets
Chief executive C.S. Venkatakrishnan was bullish on the full year, raising the group income target to £31.5 billion against the consensus of £31.2 billion. He also said the group was ‘committed to and confident in’ its financial and capital return targets out to 2028.
In line with its plans to return £10 billion to shareholders between 20245 and 2026, Barclays announced a further £1 billion buyback. In addition, the bank intends to pay £2 billion in dividends this year.
At first glance, Barclays looked to have pulled it off thanks to its investment banking and US consumer operations. Yet investors chose instead to focus on the lacklustre UK banking business, which is quite telling.
Gains from investment banking are all well and good, but they aren’t necessarily repeatable and they depend on market conditions. Ditto growth in US consumer banking, which was helped this time by a couple of one-offs.
In contrast, UK mortgage balances are up just 6% on June 2025, while retail loan growth is only around 5% and business borrowing is down. At the same time, credit impariment charges on retail loans, while still well below the cycle average, are creeping up.
UK deposit growth is even less robust, with total customer deposits up less than 2% and business deposits down. The contraction in business loans and deposits is telling us something about the state of the economy, and investors are listening.
Given Lloyds (LON:LLOY) and NatWest (LON:NWG) don’t have the cushion of investment banking or the US consumer, all eyes will be on their results later this week.
