In October 2020, Barclays had warned that it could be forced to make some cuts after it reported that credit impairment charges reached £4.3bn during Q3 of last year. The group had set aside just £608m to cover a surge in customers defaulting on their loans.
A year on, and while the coronavirus pandemic is not yet over, fears have subsided, and things seem to be looking up, following a reversal in impairment charges and the Barclays share price – it had fallen 15.3% in 2020. The group announced a credit impairment release of £797m for the three months to the end of June 2021, having incurred charges of £55m in Q1. CEO Jes Staley put the impairment reversal down to “improved macroeconomic conditions”.
During Barclays’ half-year earnings call, group finance director Tushar Morzaria said that “credit conditions remain pretty benign across corporate and consumer” and “delinquencies continue to tick down”.
Barclays share price jumps on tumbling impairment charges
Impairment reversal aside, another big surprise was a pre-tax profit rise to £1.5bn, comfortably beating estimates of just over £1bn. The rise was mainly driven by a 19% increase in banking fees from M&A.
Revenue for the equities business rose 15% to £777m during Q2, while fixed income, currencies, and commodities (FICC) revenue declined 39% to £895m.
Total pre-tax profit for the first half of the year was £4.9bn, a significant improvement on the £ 1.2bn reported in the year-ago period. On the back of this, the group announced a dividend of 2p, as well as its intentions to buy back up to £500m of shares in Q3.
The Barclays share price has been moving in a bullish pattern since announcing its half-year results for 2021 on 28 July. Since then, the stock has climbed 15.7% to close at 197.82p on 15 October, meaning the Barclays share price is up 37.2% in the year-to-date and 97.6% in the past 12-months.
Will Q3 earnings be a repeat performance?
For investors watching the Barclays share price, the question remains whether the UK bank can repeat its robust performance in the first half of 2021 when it reports its Q3 earnings on 21 October.
“Whether Q3 will prove to be equally as positive remains to be seen given the slowdowns being seen in its UK market, but also the subdued nature of markets through the summer months,” Michael Hewson, chief markets analyst at CMC Markets, says. He also believes that Q3 numbers could show “a similar pattern to the trends in Q2 with the investment bank doing most the heavy lifting”.
According to Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown: “Last year, the group put aside swathes of money in case customers defaulted on payments, but these provisions are being unwound – which helped profits substantially in the first half.
“It’s a short-term tailwind, but one which we think will have continued into this quarter,” she added, reports PA Media.
Buoyed by the recent strong performance of the investment bank, analysts are forecasting the group to announce profits of around £1.6bn, according to The Independent.
AJ Bell analysts Russ Mould and Danni Hewson believe shareholders will want an update on whether there will be an imminent shake-up of the management team, the publication notes.
“There have been hints that boss Jes Staley may leave by the end of 2021, especially after a reshuffle of management heads at this time a year ago,” they said.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.