Barclays shares slide after earnings reflect fading rate windfall

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Barclays shares fell after it reported an underwhelming set of second-quarter earnings, in which its retail business warned that profit margins are compressing, while trading and dealmaking revenue plunged at the investment bank.

On Thursday, the lender announced that profit jumped 17 per cent at the UK consumer division, which it said reflected “tailwinds from higher rates”. A day earlier, the Federal Reserve raised its interest rate to the highest level in 22 years, while in June the Bank of England set its benchmark at 5 per cent after a 13th consecutive increase.

However, analysts flagged a forecast that Barclays’s net interest margin (NIM) — the difference between the interest received on loans and the rate paid for deposits — will narrow from 3.2 per cent to 3.15 per cent and that its UK deposits fell 2 per cent in the quarter.

Finance director Anna Cross said that this reflected “customers acting rationally and proactively” to higher rates by paying down their debt and moving their money into more lucrative savings products. It is another indication that the long-awaited rates windfall may be abating.

A day earlier, Lloyds Banking Group said its profits were similarly hit by increased competition for mortgages and savings. Lenders are also under political pressure to pass on more of the benefits of rate rises to clients.

“We expect Barclays shares to soften slightly today,” said Numis analyst Jonathan Pierce. “The miss on income and UK guidance is unhelpful . . . It won’t help the broader margin debate across the British banks sector.”

The quarter was also disappointing at the investment bank. Revenue dropped 22 per cent to £3.2bn, with fixed-income and equity trading both reporting steep double-digit declines as market volatility subsided. Advisory and capital markets fees fell 15 per cent to £472mn, which the lender blamed on “lower client activity” and a dearth of deals.

Citigroup analyst Andrew Coombs said all three divisions of the investment bank had “weaker revenues than US peers . . . We expect the revenue miss and lower NIM guidance to be met with disappointment today”.

Barclays shares fell more than 6 per cent in early trading in London.

Overall, second-quarter group net profit increased 24 per cent to £1.3bn from £1.1bn in the same period last year, beating analysts’ expectations of £1.2bn.

However, the year-on-year comparison was flattered by £1.3bn in litigation and conduct charges taken in 2022 versus only £33mn this year, largely related to an embarrassing trading error that led to the bank improperly selling $17.7bn of structured financial products. When this impact was stripped out, profit fell 6 per cent.

Group revenue fell 6 per cent to £6.3bn, missing analysts’ estimates of £6.5bn. Barclays also took fewer provisions for bad loans than analysts had forecast.

On a brighter note, the bank also announced a share buyback of £750mn, adding to the £500mn completed in the first half.

Chief executive CS Venkatakrishnan also addressed the scandal at NatWest, which tried to close former Ukip leader Nigel Farage’s bank account in part because of his political views and has cost its boss Alison Rose her job.

“She [Rose] has had a great career at that institution . . . and been a role model for many,” he said.

The affair has prompted the government to demand an overhaul of the sector’s procedures in closing accounts, ensuring greater protections for free speech and giving customers more notice and rights to appeal.

“We welcome the process by the Treasury to standardise behaviour among banks . . . we feel strongly people shouldn’t be excluded on the basis of their personal or political beliefs,” Venkatakrishnan said.