Barclays Earnings: Good Corporate and Investment Bank Performance as NIM Outlook Remains Complex

No-moat Barclays BARC posted a strong 15% return on tangible equity for the first quarter. A strong recovery in consumer, cards, and payments supported by the Gap portfolio the bank closed in the second quarter last year and a good quarter in the corporate and investment bank stood out positively in this earnings release. The return of card balances, especially in the United States, resulted in higher loan losses, however. We maintain our fair value estimate of GBX 208/$10.10 per share.

Net interest income in Barclays U.K., if we look at the sequential development, increased only marginally, from GBP 1,600 million to GBP 1,618 million. The net interest margin expanded 8 basis points to 318 basis points. This was largely expected and guided for by the bank in the previous earnings release. Through the remainder of the year, the structural hedge is expected to remain a tailwind, as about GBP 50 billion in hedges at around 1% yields roll over gradually onto swap rates currently sitting at just below 4%. Greater low- or non-interest-bearing deposit migration into higher-interest-rate deposits or savings accounts will form a headwind, however. The bank continues to guide for NIM above 320 basis points, which given the first-quarter performance and structural hedge outlook looks achievable, even if product margins remain under pressure.

The corporate and investment bank posted a good quarter, up 1% versus a strong quarter a year ago and up significantly (54%) from a poor fourth-quarter result. Global markets made a strong comeback in fixed income, currencies, and commodities as well as in equities, up 83% and 60%, respectively. Other business units performed well too, with corporate lending especially showing a welcome positive contribution of GBP 95 million after three consecutive quarters of losses.