The past 12 months have been difficult for banks in general, but the UK sector has underperformed even relative to its global peers, as Brexit uncertainty and the Covid-19 pandemic weighed heavy on investor sentiment. The overall performance of UK banks since the beginning of 2020 has been disappointing.
While the movement of Barclays’ share price has been less than admirable, currently down over 15% from the end of 2019, it has still been the best performer among the big four. With the bank’s full-year results set to be announced on Thursday, what can investors expect?
Barclays’ share price recovering slowly
The recovery from the lows of early 2020 has been a long slow one. The Barclays share price has yet to reach pre-lockdown levels, but has made its way back steadily from 80p, a low reached in March last year. Strong recent gains have been attributed to the success of the UK’s Covid-19 vaccine rollout, which has now been reached 15m people in the country.
The bank is expected to announce a 36% drop in profits, down to £2.8bn, and it’ll be an interesting measure of the banking sector to contrast Barclays’ share price performance with that of NatWest, which will announce results later in the week.
Provisions made, pay-outs cut
Barclays, and the rest of the UK banking sector, has been hit hard by the Covid-19 pandemic, due to the emergency loan scheme and the huge provisions needed to offset the likelihood of non-performing loans Barclays set aside £608m in provisions for these loans in October.
This provision was slightly lower than expected, bringing the total year-to-date to £4.3bn, and there was also an increase in PPI provision of £1.4bn. That £608m came on top of the £3.7bn set aside in the first half of 2020, a fall of 63% from Q2, with the bank saying that provisions in the second half of the year are likely to be lower again.
Provisions for credit card debt were also sharply lower, making up £183m of that £608m total. As we navigate our way through this latest lockdown, there is a risk that the optimism we saw back in October may well have been misplaced, and there could be an increase in provisioning.
In April 2020, management were forced to cut shareholder payouts after a request from the Bank of England. Now the central bank has removed this ban, Barclays will be allowed to pay a dividend, although these will be capped. This week’s update may reveal more about the payouts, as well as bonuses for CEO Jes Staley and senior staff. Staley’s pay packet is expected to have dropped after he donated £392,000 to Barclays’ coronavirus fund.
Investment division continues to outperform
On the plus side, if the recent performance of US banks and the recent steepening of the yield curve is any guide, Barclays corporate and investment banking division (CIB) could well help offset any underperformance in its retail operations.
Barclays’ CIB is expected to announce a 20% rise in profits, with an estimated £3.6bn compared to £3bn last year. This improvement, attributed to increased market volatility and an increase in mergers and acquisitions activity at the end of last year, cushions the blow from the loan provisions made by Barclays somewhat, and could have a positive impact on the Barclays share price.
Barclays will announce full-year results on Thursday 18 February at 7am. What will this mean for the Barclays' share price?
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