Barclays demonstrates strength in Q1 numbers

After suffering with the rest of the stock market during the tariff crash, the UK lender is now within a whisker of a near 15-year high. ii's head of markets talks through these first-quarter results.

30th April 2025 08:22

Richard Hunter from interactive investor

These are fine numbers from Barclays (LSE:BARC) which again demonstrate the benefits of the group’s diversified business model.

Unsurprisingly, the US is the focus of the group’s preparations for the months ahead, and Barclays has added a prudent £100 million to bring its impairment charges to £600 million currently, £74 million of the additional provision relating to the US given rising economic uncertainty. In addition, the group is seeing no signs of deterioration across its portfolios and promisingly the level of defaults on its cards in both the US and the UK is broadly stable, which has not led to any immediate alarm bells.

Invest with ii: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

The group has had a good run of late, and much of that optimism revolves around prospects for and performance of its three largest units. The Investment Bank, which is for the most part a US division, accounts for 50% of group revenues, Barclays UK 27% and the Barclays US Consumer Bank 11%.

The recent strength of sterling against the US dollar is unusual in that the group is reporting a currency headwind as opposed to the usual tailwind it announces. However, this is something of a double-edged sword in that this sterling strength negatively impacted revenue and profits, while having a positive effect on impairment charges and total operating expenses, especially Stateside.

As had been hoped, the recent strength of the bank sector reporting season in the US has indeed read across to Barclays’ US Investment Bank, where overall income rose by 16% to £3.87 billion, underneath which was a hike of 51% in Net Interest Income and 22% in Net trading income. Despite any slowdown currently being experienced in the M&A and IPO space, general market volatility has boosted income at the trading unit, where income rose by 21% across fixed income and equities, with higher balances generally propelling revenues higher across the unit.

Barclays UK saw income increase by 14%, helped along by income from the so-called structural hedge, which lessens the group’s susceptibility to changes in interest rates, although this was partly offset by mortgage margin pressure. The addition of Tesco Bank to its portfolio has also immediately added a tailwind to revenues, despite some adverse deposit dynamics as customers seek higher rates elsewhere, although this appears to be stabilising.

The key metrics also showed signs of significant strength and improvement on the whole. The Return on Tangible Equity (ROTE) came in at 14%, higher than both the expected 12.9% and 12.3% the previous year. A robust capital cushion or CET1 ratio of 13.9% is also in place, with the direction of the cost/income ratio impressive, dropping to 57% and helped by cost savings of £150 million in the quarter.

The combined improvements led to impressive gains at the group headline level, where revenues increased by 11% to £7.7 billion against an expected £7.4 billion and where pre-tax profit also breezed past the estimated £2.49 billion to land at £2.7 billion, an increase of 17% on the corresponding period.

Meanwhile, Barclays is also maintaining its stance on shareholder returns, planning to return some £10 billion between 2024 and 2026, skewed mainly towards share buybacks rather than a particularly progressive dividend policy. That being said, buybacks will increasingly lead to less shares in issue which will by definition drive dividend per share growth. In the meantime, a yield of 2.8% is therefore understandably pedestrian and has also partly reduced due to the recent share price strength.

With the group guidance for Net Interest Income also being raised to more than £12.5 billion from a previous £12.2 billion, and with the outlook remaining generally unchanged, there has been a relatively warm reaction to the overall numbers.

This adds to a share price which has risen by 46% over the last year, as compared to a hike of 3.9% for the wider FTSE100, and which has already gained by more than 11% this calendar year. Underpinned by the group’s financial strength and its geographical and business diversity, there is little to suggest that the current market consensus of the shares as a strong buy will be troubled following this update.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Get more news and expert articles direct to your inbox