Barclays’ shares climb despite hit to H1 profits

Added 29th July 2016

Barclays’ share price rose 7.6% to 157.68p after reporting a 21% drop in profits due to major restructuring efforts over the first half of the year.

Barclays’ shares climb despite hit to H1 profits

Group profit before tax was £2.06bn in H1 2016, compared with £2.6bn the previous year.

Despite the fact the Barclays’ dip in profit before tax was considerably higher than fellow competitor Lloyds, which saw its pre-tax profit double, the reaction of each bank’s share price following the interim results could not have been more different.

Barclays’ share rallied sharply in light of the figures and became the top riser of the FTSE 100 index Friday morning. Lloyd’s share fell nearly 5% Thursday morning, making it the worst FTSE 100 performer.

The market’s response to Barclays’ H1 figures could be explained by the fact that the bank’s core business performed quite well over the period compared with its non-core business, said Laith Khalaf, senior analyst at Hargreaves Lansdown.

Barclays' non-core business reported losses of £1.9bn during H1 (H1 15: £745m) as its core business saw a growth in profit before tax of 19% to £3.97bn.

However, group chief executive, James Stanley, said the bank remains committed to closing the unit by 2017 and expects costs for the non-core business to run between £400m-£500m next year.  

Barclays is also making progress in the deconsolidation of Barclays Africa, disposing of 12.2% of its stake in the group in May of this year.

Although Khalaf regards Barclays as a “bank in transition,” he approves of Staley’s proactivity in addressing the weak points of the business.

“Barclays is a bit of a Jekyll and Hyde character at the moment, but Doctor Jekyll is starting to gain more control, as all the grisly bits of the bank get wound down,” he said. “The new boss, James Staley, seems determined to get on with the task of getting rid of the bad bank sooner rather than later. If and when Barclays gets rid of its non-core businesses it should start to look more like an upstanding citizen of the banking sector, but that is still going to take until 2017 at least, a decade after the banking crisis kicked off.”

“Unlike Lloyds, Barclays hasn’t announced any further job losses or branch closures. That lends credence to Lloyds’ assertion that the changes were a strategic response to changing customer trends, in particular a move to digital banking. If Barclays had followed suit, it would have looked like the banks were looking to cut costs in the face of the economic uncertainty caused by Brexit.

"Barclays remains a bank in transition and more skeletons may come out of the closet as the bad bank is gradually disposed of. The risk is an economic storm hits while Barclays is still mending the roof,” Khalaf added.

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