Barclays profits surge as dealmaking volumes bounce back

Barclays earnings beat expectations in the third quarter, with the banking giant cashing in on a rebound in dealmaking volumes.

The lender’s pre-tax profits surged 18 per cent year-on-year to £2.2billion in the three months ending September, surpassing analyst forecasts of £2billion.

Its income expanded by 5 per cent to £6.5billion, mainly due to investment banking fees rising by 6 per cent to £2.85billion on the back of higher debt underwriting and significant mergers and acquisition activity.

Growth further benefited from lower credit impairment charges, stable operating costs, and its UK arm earning greater structural hedge income amidst moderating interest rates.

Barclays said this offset the impact of mortgage margin pressure and ‘adverse product dynamics’ on its deposits from customers seeking better rates elsewhere.

Structural hedging is a strategy banks employ to minimise the effects of changing interest rates on their profits.

So, while the Bank of England has recently cut the UK base rate and home borrowing costs have come down, Barclays boosted the net interest margin at its British business by 0.3 percentage points to 3.34 per cent.

Net interest margin refers to the difference between what banks pay savers and charge borrowers.

Following the result, Barclays is now targeting income, excluding its investment bank, of more than £11billion this year, with about £6.5billion coming from the UK division.

CS Venkatakrishnan, chief executive of Barclays, said: ‘We continue to be focused on disciplined execution of our three-year plan and are encouraged with progress to date.’

Between 2024 and 2026, the company aims to reduce costs by £2billion and restructure its business into five core divisions while handing at least £10billion to shareholders.

So far this year, it has saved around £700million in costs and kept its cost-income ratio consistent at 61 per cent.

Barclays’ results come a day after Lloyds Banking Group declared it also exceeded third-quarter profit estimates thanks partly to structural hedge earnings.

The Bank of Scotland owner reported £1.8billion in pre-tax profits, compared to the £1.6billion anticipated by analysts.

John Moore, senior investment manager at RBC Brewin Dolphin, said: ‘After years of managing to grab defeat from the jaws of victory, Barclays appears to have turned a corner and is delivering consistently good numbers.

‘The acquisition of Tesco Bank should bolster its position within the UK and points to a simplified and more focused direction of travel for the years ahead.’

Barclays shares were 2.8 per cent up at 244.9p on Thursday morning, taking their gains to approximately 59 per cent since the year started.