Analyst Note| Niklas Kammer |
No-moat Barclays reported profit before tax of GBP 1.3 billion for the first half of 2020, as its trading unit more than offset a surge in pandemic-related loan-loss provisions. Income generation up 8% versus last year was good on the face of it, but this was owed to a stellar 86% growth in Barclays’ international trading line, with all other businesses on the decline. Little of this came as a surprise, however. Higher market volatility, client activity, and widening spreads supported fixed income, currency and commodities, and equities trading, while equity and debt issuance was healthy, as well. We had seen glimpses of this performance in the first quarter as well as with other banks with investment banking and trading exposure in the second quarter already. Consumer, cards, and payments income declined 21% year over year, driven by a lower customer activity resulting in lower card balances, lower payment volumes, and squeezed margins owed to lower interest rates. We do expect some recovery here in the second half of the year as consumers return to spending. This should increase card balances and help margins, while higher consumer spending should also drive payment fees back closer to prepandemic levels. The United Kingdom business saw income decline 11% versus the same period a year ago. The net interest margin is under pressure, given current payment holiday schemes and a lower base interest rate, but this should be partially offset for the rest of the year as Barclays reprices its deposits to a lower base, as well. Operating expenses showed a positive development, down 4%, driven by cost efficiencies and lower marketing spending in the international business. For the half year, Barclays added GBP 3.7 billion to its reserves for potential loan losses, GBP 1.6 billion of which was in the second quarter. We maintain our fair value estimate of GBP 170 per share.