- Share price hovers just below 15-year highs
- First-quarter results buoyed by cost control, the investment bank and net interest income
- Increase in loan losses still a potential concern
“It is unlikely to attract the sort of damning invective poured upon JP Morgan by the American author John Dos Passos in his book USA in the 1930s*, but Barclays’ investment bank is one beneficiary of the financial market volatility prompted by Donald Trump’s return to the White House,” says AJ Bell investment director Russ Mould.
“Higher net interest margins and good cost control contributed to a stronger-than-expected profit in the first quarter of 2025, but the shares are not really responding, perhaps owing to fears over how lower interest rates and higher loan losses could yet have an impact, especially if Trump’s trade and tariffs policies prompt a global slowdown or even a recession.
“Barclays’ shares are up by some 45% over the past year to leave them just below 15-year highs, so it may take a sustained series of upside earnings surprises for them to push on, given how investors continue to fret, and seek reassurance, about the uncertain macroeconomic environment.
Source: LSEG Refinitiv data
“The bank’s plan to return £7 billion to shareholders across 2025 and 2026, via dividends and share buybacks, could help to provide some support in the meantime, especially as that sum represents 18% of its current stock market capitalisation.
Source: Company accounts, Marketscreener, management guidance, consensus analysts' forecasts
“A run-rate cash return of some 9% a year beats inflation and compares nicely to the returns available from cash or UK government gilts, too. If the bank can keep this up and continue to stay out of trouble with the regulator, it could even be turning into the sort of boring, quasi-utility lender for which investors longed in the wake of the Great Financial Crisis when egregious risk-taking across the industry led to disaster.
Source: Consensus analysts’ forecasts, company investor relations’ websites
“However, the risk with banks is that things do not stay boring for long, although Barclays’ strong first-quarter performance suggests it is yet to encounter any trouble thus far in 2025.
“Pre-tax income of £2.7 billion for the first three months of the year represented a jump of nearly a fifth compared to the same period in 2024 and comfortably exceeded consensus analysts’ forecasts of £2.4 billion.
Source: Company accounts
“All of the main business units showed a year-on-year increase in profits except the USA, and the investment bank led the way.
Source: Company accounts
“Price volatility in stock, bond, currency and commodity markets has clearly helped here, even if merger and acquisition and new stock market flotation activity remains relatively subdued.
“Healthy net interest income, to mirror a trend flagged by Banco Santander in its first-quarter results, also helped.
Source: Company accounts
“However, lower interest rates could put some pressure on net interest margins and markets believe that both the US Federal Reserve and the Bank of England will cut headline borrowing costs four times this year, down to 3.50% from the current 4.50%.
“Moreover, Barclays chief executive C.S. Venkatakrishnan does note that softer primary markets could eventually start to weigh on the investment bank, in the event that a tariff-driven global slowdown takes its toll on corporate profits and equity valuations. He also flags a slight increase in loan loss impairments in the US, to reflect greater uncertainty in the economic outlook, a conservative approach which explains why the American operation’s earnings are down from a year ago.
“Analysts do not expect a major deterioration in sour loans in 2025, although the direction of gilt yields and Bank of England base rates could yet have a say, let alone the global economy. The trend in loan impairments does seem to be up, albeit from historically low levels and, for the moment, this looks more like a normalisation in loan write-downs than a surge in bad debts.
Source: Company accounts
“But it is the investment bank’s capacity for boom-and-bust earnings cycles which is the simplest, and most likely, explanation for why Barclays’ shares continue to trade at a discount to those of its FTSE 100 peers, at least on the basis of price to historic net asset, or book, value.
Source: Company accounts, consensus analysts’ forecasts, LSEG Refinitiv data. Historic book value covers Q1 2025 for Barclays and HSBC and Q4 2024 for the other three.
“A period of consistent results may ease those fears and help Barclays achieve its overall return on equity targets of 11% for 2025 and more than 12% for 2026. If those goals can be met, then Barclays may also deserve to trade on one times NAV or even higher.”
*Dos Passos wrote in his book ‘U.S.A.’: “Wars and panics on the stock exchange, machine-gun fire and arson, bankruptcies, war loans, starvation, lice, cholera and typhus: good growing weather for the House of Morgan.”
