More on Barclays
Barclays: Q1 trading statement
Barclays issued a generally upbeat trading update for the three months to March 2005 but warned of increased credit card delinquencies following the downturn in consumer spending.
The bank said profit growth in the first quarter was “good”, with UK banking, Barclays Capital, Barclays Global investors and private clients all performing to expectations. In the recent past, profit growth in the company has been driven by Barclays Capital and strong growth in this business looks set to drive first quarter earnings as well.
Barclaycard (which accounts for about a fifth of the company’s profits) has reported good income growth, growth in credit and loan balances and, ominously, a “significant” increase in impairment losses. The bank says the higher impairment losses have more than offset the improved income performance, which means this business is likely to report a decline in earnings in the first quarter.
The banks seems to have performed reasonably well in the first quarter but the concern is that the increased bad debts in credit cards could be an early signal of further problems elsewhere particularly retail banking, where profits last year were helped by a £256m reduction in provisioning (accounting for almost 37% of the growth in operating profits). This resulted in slightly reduced cover for non-performing loans and there may well be a need for further provisions here if the credit environment deteriorates further.
UK Retail Banking income for the first quarter was reportedly flat. Growth in current accounts have been offset by weaker income from the mortgage business and retail savings, a trend we also noted last year. While the bank does say, impairment losses in UK retail banking are in line with expectations, it is an area that needs to be closely watched.
Barclays growth prospects in the short term will be boosted by the acquisition of Absa, the South African bank. The current year should see the benefit of half a years consolidation of Absa profits. Absa makes about a tenth of Barclays profits, so the impact will be to boost Barclays profits a little under 5%, assuming no change in profitability at either bank.
Barclays trades at 528p, on a prospective PE (2005 earnings) of 10.8x, in line with the sector. The yield is 5.1%.
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