Morningstar | Barclays' 1Q 2019 Results Affected by Weaker Margins and CIB Performance
Barclays posted first-quarter profits before tax of GBP 1.5 billion compared with GBP 1.7 billion last year, excluding litigation and conduct charges. The culprit this period was the corporate and investment banking unit, which delivered weaker results in equities, corporate lending, and transaction banking on the back of reduced client activity and lower volatility. Additionally, credit releases in the first quarter last year, which could not be repeated, hurt performance. The segment’s profit before tax declined to GBP 0.8 billion from GBP 1.2 billion last year. Underlying profits for the group came in at GBP 1.1 billion compared with GBP 1.2 billion in the same period the year prior. We maintain our fair value estimate of GBX 220 per share and no-moat rating.Net interest income generation was slightly up (3%) as higher deposits and mortgage volumes could offset margin pressure both in the U.K. and Barclays’ international unit. The net interest margin declined to 3.18% as a result of mortgage margin pressures and a shift towards secured lending in favor of unsecured credit volumes.
On the backdrop of lower mortgage margins and weaker income generation from corporate and investment banking, or CIB, management aims to lower costs below its current target range for 2019 between GBP 13.6 billion and GBP 13.9 billion should this challenging environment persist through the year. This is expected to be achieved through performance pay reductions in CIB, and delayed growth investments.
Barclays is a holding company. Through its subsidiaries, Co. is a financial services provider engaged in retail banking, credit cards, wholesale banking, investment banking, wealth management and investment management services. Co.'s business segments are: Barclays U.K, which provides everyday products and services to retail customers and small to medium sized enterprises; Barclays International, which delivers products and services designed for Co.'s corporate, wholesale and international banking clients; and Head Office, which comprises head office and central support functions (including treasury) and businesses in transition.
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