Barclays Q1: Top Line Declines on Strong Basis; FICC Disappoints but Investment Bank Still Strong

Barclays reported an attributable profit of GBP 1.7 billion for the first quarter of 2021. This was much better than the GBP 0.6 billion reported in the year-ago period, although comparability between the two periods is low. Total income declined 6% to GBP 5.9 billion year over year driven by 21% lower net interest income. Margins at the group level are under pressure from the lower interest rates in Barclays’ core markets, the U.K. and the U.S., as well as reduced demand for unsecured lending. The higher margin unsecured lending business which typically props up Barclays’ net interest margins remains a drag on performance with balances down over 20% compared with last year. While the top-line decline may appear worrisome, we would highlight that this performance is still up 12% versus the same period in 2019. The corporate and investment bank showed another good quarter overall with income roughly flat off a strong base last year. Barclays’ fixed income, currencies, and commodities business did disappoint (down 35%), however, as competitors showed strong numbers in this segment. Operating expenses increased 9% to GBP 3.5 billion on higher variable compensation owed to the strong performance in the investment banking division over the last year. Loan loss provisions of only GBP 55 million were supportive of the better bottom-line performance this quarter, as well. We increase our fair value estimate to GBX 185 from GBX 170 per share, driven entirely by the time value of money since our last model update. Our no-moat and stable trend ratings are unchanged.