FTSE 100 banks slumped on Wednesday, led by Barclays which released worse-than-expected trading numbers for 2022.
The Barclays share price tumbled 8% to 172p per share in midweek trading. Meanwhile Lloyds
and NatWest Group
Barclays said that pre-tax profits dropped 14% in 2022 to a shade over £7 billion. This was thanks to hulking loan impairment charges and litigation costs racked up in the period.
Loan Charges, Litigation Costs Weigh
Higher interest rates led to a rise in the bank’s income last year. Revenues rose 14% to £25 billion, led by strength at its Consumer, Cards and Payments unit where income jumped 35% year on year to £4.5 billion.
Bank of England rate hikes pushed Barclays’ net interest margin (NIM) — an instrument used to measure the difference between the net interest income a bank makes from its lending activities and the interest it pays to savers — rose to 2.86% last year from 2.52% previously.
However, an extra £498 million credit impairment charge in the fourth quarter helped push Barclays profits lower in 2022. This took total bad loans for the whole year to £1.2 billion, a massive departure from the £653 million it released from its capital reserves in 2021.
The FTSE 100 bank was also whacked by £1.6 billion worth of litigation and conduct charges last year. These related to the bank selling $15.2 billion more worth of US structured than it was permitted to early in 2022.
Commenting on the results Barclays chief executive said that the bank had “performed strongly” in 2022. He warned that “we are cautious about global economic conditions, but continue to see growth opportunities across our businesses through 2023.”
The bank raised the full-year dividend for last year to 7.25p per share, up from 6p in 2021. It also announced the launch of a fresh £500 million share repurchase programme, taking total buybacks for 2022 to £1 billion.
This was despite Barclays CET1 capital ratio dipping to 13.9% last year from 15.1% in 2021.
For 2023 the bank predicted that its NIM would rise to above 3.2%. It said that its “diversified income streams continue to position the group well for the current economic and market environment including higher interest rates.”
However, Barclays added that its loan loss rate (LLR) could double this year given current macroeconomic conditions. It predicted a range of 50 to 60 basis points in 2023, up from 30 basis points in 2022.
Barclays’ CET1 ratio meanwhile is tipped to range between 13% and 14%.
Sophie Lund-Yates, analyst at Hargreaves Lansdown commented that “Barclays has bitterly disappointed the market with its full year numbers.”
She said that the bank “is more than able to stomach” its US litigation costs from a financial standpoint. But she added that “the wider-reaching difficulties come from reputational damage” and that “the tolerance margin for a similar mistake is now very thin.”
Lund-Yates noted that lower fees from its investment banking business and higher impairment charges are also challenging the business today.
She added that “in the shorter-term the market needs more convincing that it’s on the right track.” Though she continued that rising interest rates should benefit the bank for some time, whilst its “diverse income streams” are boosting its long-term outlook versus those of its rivals.
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