Barclays (LON:BARC) reported steady Q3 2023 results, with the bank generating £6.3 billion in income, a slight decrease YoY excluding the over-issuance of securities from the previous year. Profit before tax stood at £1.9 billion, with earnings per share at 8.3 pence. The bank also highlighted a CET One ratio of 14%, up 20 basis points on Q2, and a Q3 return on tangible equity of 11%.
Key takeaways from the call include:
- The US cards business saw net receivables grow by 11% YoY to $30 billion.
- Barclays announced a partnership with Microsoft (NASDAQ:MSFT) and Mastercard (NYSE:MA) to issue a co-branded Xbox card.
- The UK wealth business and private bank integration is progressing, with client assets and liabilities reaching nearly £180 billion and invested assets at around £105 billion.
- The bank's risk mix has improved, with 88% of the book above a 660 FICO score.
- The impairment coverage has increased to 9.7%, reflecting expectations of higher unemployment.
- The company expects a higher impairment charge in Q4 due to seasonality and anticipated growth over the holiday season.
- The company's net interest margin (NIM) was 304 basis points, larger than expected due to deposit balance and mix trends.
- The company is evaluating actions to reduce structural costs, which may result in material charges in Q4.
- The company continues to target a return on tangible equity (ROTI) above 10% in 2023 and a cost-to-income ratio in the low 60s.
Barclays executives addressed questions about the guidance for the UK net interest margin (NIM) and the restructuring charge in Q4. They explained that the movement in deposits and intense competition in Q3 impacted the NIM, leading to a range of guidance for Q4. The restructuring charge is part of a larger plan to improve efficiency and productivity, with specific details to be provided in February.
The bank also discussed trends in deposits throughout Q3 and into October, stating that the outflows were spread more evenly throughout the quarter compared to Q2. The structural hedge continues to protect the NIM overall, and the bank emphasized its focus on improving business returns and continuing cost focus.
Addressing rumors about selling a stake in its UK merchant acquiring business, Barclays stated it is considering its comparative advantage in the technology-driven business. Regarding Basel 3.1 regulations, the bank is waiting for the final rules and expects roughly comparable capital regimes between the US and the UK.
In terms of financial targets, Barclays will provide more information in February but mentioned that the increase in tangible net asset value (TNAV) in Q3 is a reversal of earlier trends. The bank also highlighted its approach to competition for deposits, stating it is comfortable with its current pricing but keeps it under review.
The bank expects the margin in its consumer, cards and payments (CCNP) segment to step back in Q4 and will provide more details on its plans and expectations for returns in 2024 in February. The bank also discussed the flow of invested assets in the private bank, noting a one-off impact in Q3 that will not have a significant long-term effect.
Barclays plans to provide guidance for returns, capital allocation, costs, and distributions for 2024 at the full-year update. It emphasized its focus on returns and addressed a decline in transaction banking revenues, attributing it to deposit migration and low disposal income from the liquidity buffer.
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