Barclays receives higher deposits boost

• Barclays deposits rose 2% between January and March 2023 to £556 billion
• This suggests its customers and clients are not experiencing the same crisis of confidence as that of their American equivalents
• Shares see early gains in wake of results release

“American officials are still scratching their heads as to what they should, or can, do about First Republic Bank, as its customers flee and share price collapses, but investors in Barclays have no such grounds for concern after its first-quarter results,” says AJ Bell investment director Russ Mould. “Deposits rose 2% between January and March to £556 billion and although loan losses crept up they were no worse than expected, and rising net interest margins and a strong showing from the investment bank more than compensated.

“The increase in deposits suggests that Barclays’ customers and clients are having nothing like the crisis of confidence that their American equivalents are, and while a 9% year-on-year increase in loans catches the eye, the total loan book, at £404 billion, is still smaller than it was in Q3 2016. That suggests Barclays is hardly taking the sort of egregious risk that would frighten customers and clients, or the regulator, especially as total risk-weighted assets rose just 3% year-on-year to £338 billion, no higher than they were in Q4 2016.

Source: Company accounts

“Shareholders seem quite content as well, judging by the early gains in the share price in the wake of the results release. The increase in loan losses to £524 million in the first quarter from £141 million may catch the eye, and those of a bearish inclination will point to the gradual increase in asset impairments seen since global central banks began to raise interest rates in earnest in late 2021 and early 2022. But the first-quarter charge still only implies a loan loss ratio of 0.55%, which Barclays chief executive, CS Venkatakrishnan, points out is in the middle of management’s expected range for the year and it undershoots the consensus estimate of £562 million.

Source: Company accounts

“The Q1 hit is unlikely to prompt analysts to change their full-year forecasts, either. Consensus is currently looking for loan impairments of £2.5 billion, up from £1.2 billion in 2022.

Source: Company accounts

“That is a big jump but for the moment higher net interest income should help to offset the hit from higher loan losses.

Source: Company accounts. *Net interest income covers the entire group, the net interest margin is for Barclays UK only

“Shareholders will also be pleased to see the investment bank rack up an improved profit, at £1.8 billion versus £1.7 billion in the first three months of 2022. The absence of £318 million in litigation and conduct costs helped here, as did strong showings from fixed income and advisory, even if the equities business was quiet thanks to a dearth of new initial public offerings.

“Equally, it is important for the investment bank to make a good start to the year, as the first quarter is traditionally the strongest of the year for the unit. We are approaching the month when the old adage has it that investors ‘sell in May and go away’ until September, after all.

Source: Company accounts

“Welcome as it is, the investment bank’s first-quarter result may not quell the ongoing debate over its role within the Barclays group. Barclays UK made an average return on £10 billion of tangible equity of 18.7% in 2022 as a whole. The corporate and investment bank made 10.2% on £32.8 billion of net tangible assets and the credit cards and payment business 10.0% on £4.8 billion. A big wobble in financial markets would not help those comparisons and we may need to go through a full economic and market cycle to see whether Barclays was right to send activist investor Edward Bramson and his Sherborne Investors vehicle packing, or whether the board will have to repent at its leisure.

“Investors are clearly not fully convinced, judging by the lowly valuation attributed to the shares, which look very cheap on a price that stands at barely half of the stated tangible book value per share of 301p.”

Source: Company accounts, Marketscreener, analysts’ consensus forecasts, Refinitiv data