Barclays Earnings: Lower NIM Guidance a Sore Point in Otherwise Decent Quarter

No-moat Barclays BARC reported second-quarter profit before tax of GBP 1,964 million, slightly ahead of the Barclays-collected consensus estimate of GBP 1,907 million. We maintain our GBX 208 per share fair value estimate.

Results at Barclays U.K. were decent as the segment carried the momentum of the first quarter into the summer. On a year-over-year basis, income in the segment increased by 14%, largely due to rising net interest margin, or NIM, and a higher base rate. However, the banking group lowered its U.K. net interest margin guidance for 2023 from above 320 basis points previously to about 315 basis points. This came as a surprise, as Lloyds reported a slightly better outlook on NIMs and lifted its guidance just a day earlier. Barclays highlighted the usual culprits in driving the NIM outlook: persistent high inflation, higher base rate expectations, and the resulting customer behavior shifting deposits into savings or moving deposits to competitors altogether, chasing yields. The structural hedge, as we expect to be the case for all U.K. banks we cover, will remain a tailwind through 2024 and 2025, but the shifting mix in deposits and savings complicates the overall outlook. We view Lloyds as better-positioned, due to its strong retail franchise.

The corporate and investment bank faced tough market conditions, with fixed income, currency and commodities, equities, and advisory and debt capital markets down 22%, 14%, 45%, and 3%, respectively. This was partially offset by better performances in equity capital markets (up 86%) and transaction banking (up 32%). Having enjoyed a boom during the pandemic, carried by increased volatility and activity across its investment bank, Barclays is now faced with a reduced revenue pool across the industry, weighing on overall group profitability.

Excluding one-offs, Barclays achieved a 6% income growth (GBP 6.3 billion), outpacing 2% higher expenses (GBP 4.0 billion) driven by inflation and investments into the business.