Barclays Share News (BARC)

(Sharecast News) - Barclays third-quarter underlying profits beat City estimates, helped by the corporate and investment banking arm outperforming US peers in the markets.Net operating income for the third quarter came out at £4.88bn, up 9% on the same period last year and down 8% on the second quarter but beating the average analyst forecast of £4.69bn.Pre-tax profit of £1.54bn for the quarter, excluding £105m of litigation and conduct charges, bested the City analyst consensus of £1.33bn. For the full year the market has pencilled in £5.7bn.Barclays UK PBT, excluding litigation and conduct, grew 18% in the quarter to £794m, on revenues up 2% to £1.9bn compared with last year. UK net interest margin, the difference on the interest rates offered for lending and borrowing, bounced back to 3.24% from 3.22% in the second quarter, but guidance is now for full year NIM to be at the lower end of the indicated 3.20-3.30% range and exit the year below this level.Barclays International profits of £882m were up strongly on last year but down on the first and second quarters this year, mainly due to CIB income slowing down from the strong first half.For the first nine months of the year, international profits were up 11%, excluding £2.1bn of conduct charges, to £3.65bn as total income decreased 2% to £10.81bn and costs increased 1% to £7bn. Income from corporate and investment banking has been stable year-on-year at £7.6bn as a 12% increase in markets has been offset by a 7% drop in banking. Consumer, cards and payments income fell 7% to £3.2bn, while credit impairment charges decreased 73% to £304m.The CIB is a bone of contention for some investors, including activist fund Sherborne, which owns a 5% stake and wants to shrink this division due to its low returns and unpredictability. Bossed by corporate raider Edward Bramson, Sherborne has expressed concerns about Barclays' capital allocation, quality of earnings, capital adequacy, cost structure and the search for a new chairman. But chief executive Jes Staley said the third quarter saw the CIB again outperformed peers in the markets, with a 19% year-on-year increase in income, while in banking there was dip in income but there has been "strong completion activity in October", with Barclays advisor on three of the largest M&A transactions executed in the period.For the group as a whole, profits for the first nine months of the year are down 9.5% to £3.1bn due to the large chunks of charges for past misconduct in the US and UK paid in the first quarter. Excluding charges of £2.1bn, PBT for the year to date was up 23% to £5.3bn as income was fairly flat in UK retail banking and corporate and investment banking, but credit impairment charges improved 53% and operating costs by 3%.On conduct matters, later in October the High Court in London will hear the Serious Fraud Office's application to reinstate all charges again Barclays linked its emergency fundraising from Qatar in 2008.On the capital front, Barclays maintained a strong position, with a Core Equity Tier-1 ratio of 13.2% at the end of September. The bank received UK regulatory approval to buy back outstanding retail dollar preference shares ahead of the next Bank of England stress tests.Staley said it remains the board's intention to pay a dividend for 2018 of 6.5p, with an interim dividend of 2.5p per share having paid during the quarter in respect of the first half.He concluded said: "In spite of macro-economic uncertainty, and particularly concerns over Brexit which weigh heavily on market sentiment, 2018 is proving to be a year of delivery on our strategy at Barclays. We remain focussed on generating improved returns, and on distributing a greater proportion of excess capital to shareholders over time."MARKET REACTION & ANALYSISShares in Barclays were oscillating around 166p on Wednesday morning, little moved on the day, so still down more than 18% in 2018 and almost 27% since the start of the previous year.Analysts at RBC Capital Markets said income declined 1% year on year and missed the City consensus by 1%, half of which was explained by a £41m one-off revaluation of Visa preference shares.Costs beat expectations by 1% in the quarter, "so at a pre-provision level the results were broadly in line with expectations", RBC said, with impairments 50% ahead of consensus expectations, mostly due to changes in consensus macroeconomic forecasts and the IFRS9 accounting changes in both the US and the UK, meaning PBT therefore is an 18% beat of consensus.Laith Khalaf at Hargreaves Lansdown said the jump in profits can be largely put down to a lower level of bad loans, stemming from improved economic forecasts, stronger sterling, and some one-off adjustments."That's all well and good, but it's doesn't give investors a great deal to hang hopes on in terms of profitability going forward," he said, with income flat so far this year and actually down in the third quarter."Performance was mixed at the investment bank, though expectations had been set low last time Barclays spoke to the market in August. Given currency headwinds, and a hint from Jes Staley that October has seen better banking revenues, the market is likely to give a cursory nod to the numbers. The recent volatility we have seen in global markets should also help out a bit with trading income at the investment bank, though questions will still linger, not least as activist investor Edward Bramson reportedly wants to shrink this division."Khalaf felt the results "don't really change the big picture" at the bank, with progress coming in fits and starts, "and we'd like to see greater consistency in its performance".Broker Shore Capital noted that management plan to buy back $2.65bn of preference shares the company and $2bn of AT1 capital during the fourth quarter, which is expected to reduce the CET1 ratio by 33bps and tangible net assets per share by 6p from 260p, but with a post-tax positive impact on earnings thereafter of roughly $285 per year."This would suggest mid-single digit percentage upside risk to our earnings forecasts in 2019F, but we suspect in reality this will be offset by continued competitive pressure on the top line (noting updated guidance on net interest margin). We would therefore not be in a hurry to put through upgrades," ShoreCap said.Neil Wilson at Markets.com said strength in the CIB and ahead of US peers is "vital for Staley and one in the eye for those who wish to see Barclays scale back its investment banking arm", with the likes of Bramson needing to reassess their stance.The return on tangible equity picture looks better too, said Wilson, as costs come down and revenues start to ratchet higher, leaving RoTE of 11.1% so far this year well ahead of its target to achieve return on equity in excess of 9% in 2019 and above 10% in 2020."Some concerns of course - cost-income still high although the progress on costs - group operating expenses were 3% lower - is encouraging. Moreover the ongoing litigation impact remains a risk - just when can we confidently say all the skeletons have been properly cleared out?"