LONDON, Oct 22 – Barclays recently surprised many by announcing a share buyback and raising its profitability target for the year. This move was fueled by a positive outlook on profits and successful cost-cutting measures, which seemed to overshadow new financial reserves and a dip in investment banking performance.
Additionally, UK banks set aside £235 million for the car finance mis-selling scandal and collected £110 million related to the collapse of US company Tricolor. These corporate bankruptcies have raised questions about banks’ exposure to private credit markets.
In early trading, Barclays shares climbed 4% following the announcement of a £500 million ($670 million) share buyback. The bank has switched to quarterly share buyback updates and aims for a return on equity above 11% this year, largely due to stronger-than-expected profits and swift execution of cost reductions.
Barclays reported a pre-tax profit of £2.1 billion for the third quarter, a 7% decline that matched analyst predictions. Still, some analysts noted that when excluding auto financing provisions, profits were actually 13% higher than anticipated.
However, performance in Barclays’ investment banking sector has been a mixed bag. Profits there rose 8% year-on-year, and the Global Markets unit experienced a 15% increase. Conversely, trading fees fell by 2%, while their Wall Street competitors saw significant gains as business confidence improved along with merger activity.
CEO C.S. Venkatakrishnan highlighted that the disappointing performance in investment banking was not due to underinvestment but rather the result of missing out on several major deals during the quarter.
Recent data indicates Barclays has slipped to 14th in global merger rankings, down six spots from the previous quarter, while it ranks seventh year-to-date behind six U.S. firms. On a positive note, the consumer banking sector saw a profit increase of 19%, driven partly by price hikes and the acquisition of General Motors’ co-branded credit card portfolio.
Concerns surrounding private credit exposure have also emerged amid the collapse of several U.S. companies, signaling potential weakening lending standards. Venkatakrishnan mentioned that Barclays had no ties to First Brands, an auto parts maker that recently filed for bankruptcy, and had avoided the company due to financial concerns.
Currently, private credit exposure makes up 6% of Barclays’ total lending, which translates to approximately £20 billion, with about 70% of this in the U.S.
