More on Barclays
Barclays: Q1 trading statement
High street bank Barclay said it has expects strong first quarter profit growth driven by “very strong” growth in International Retail and Commercial Banking and Wealth Management.
Other parts of the bank’s business have also done well, with both UK retail and institutional banking delivering good results. Bad debts at Barclaycard have however continued to increase.
Barclays Capital, a key driver of growth in recent years is said to have delivered “excellent” growth in both income and profits due to recent investments in currencies, commodities and equities. Barclay’s Capital is said to have performed “at the top end of the comparable peer group”.
Barclays Global Investors, helped by asset inflows last year and a strong investment performance, has delivered strong growth. Higher asset flows and increased transaction volumes have also driven profits in wealth management.
The problem that we perceive with Barclays is the higher levels of risk than some of its high street peers.
Earnings have been driven by a sound performance in Barclays Capital, the investment bank. The nature of investment banking is such that profits are highly cyclical and follow the market cycle. Other high street banks have only a smaller exposure to investment banking and are thus less vulnerable to a slowdown in the market.
Barclaycard has been reporting high levels of impairment losses, a sign of slowing markets, and this trend looks set to continue. Whether this reflects on the quality of its overall loan portfolio is something that cautious investors need to ask themselves.
The bank says it is on track to improve its cost:income ratio by 2% (its last reported cost:income ratio at 61% is amongst the highest in its peer group) and while this is welcome, we would expect further improvements.
The bank’s capital ratio, which had also deteriorated over the recent past is said to have improved to 7.25% from the last reported 7%.
Overall, while current performance is likely to be good, earnings look to be more vulnerable to downturns in the market than some of its peers.
The share trades at 590.5p, on a prospective PE (2007 earnings) of 8.7x, at the lower end of the sector range with a good yield of 5.4%.
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