Barclays profits surge past forecasts to reach £2bn on back of rising interest rates
A rise in borrowing costs for mortgage and loan customers, as well as the recent market meltdown, has helped Barclays increase key revenues and push its latest quarterly profits higher to £2bn.
The UK bank, which had been expected to reveal a slight dip in earnings, said pre-tax profits instead rose 6% in the three months to the end of September.
That was about £200m higher than the £1.8bn that analysts had forecast, and compares with £1.9bn during the same period last year.
The results were supported by an increase in net interest income, which primarily accounts for the difference between what a bank charges for loans and what it pays in interest on deposits. The revenue stream – which also includes income from hedging products outside traditional loans – jumped to £3bn in the third quarter, up 58% from £1.9bn a year earlier.
It follows an increase in interest rates, including in the UK, where the Bank of England has raised rates from all-time lows of 0.1% last year to 2.25%, to help tackle inflation, which soared to 10.1% in September. The move, along with recent market volatility, has caused banks to raise borrowing costs for loan and mortgage customers.
Barclays’ investment banking division also almost doubled income in its bond trading division to £1.5bn, after an increase in buying and selling during the market meltdown that followed the UK government’s mini-budget last month. Barclays said it reflected “higher levels of activity as we supported our clients through a period of market volatility”.
The Liberal Democrat party is now calling on the government to introduce a tax on banks’ excess profits to try to plug a £40bn hole in public finances.
While the banking lobby group has railed against higher taxes, the Barclays chief executive, CS Venkatakrishnan, refused to be drawn on the issue. “Taxation is the purview of the government and we will see what they decide,” he told journalists.
He also ruled out moving Barclays’ headquarters abroad in order to avoid higher taxes. “Absolutely no. We have been a proud UK bank for 330 years and long may that continue.”
Higher income helped offset the £381m Barclays put aside to deal with potential defaults, as it prepared itself for the fact that some customers hit by the cost of living crisis could struggle to pay their – in some cases more costly – debts.
The bank said it had already observed a drop in spending on nonessential items such as clothing in September, as households adjusted to higher bills, including for energy and gas.
Its provision for potential defaults was higher than the £330m expected by analysts, and is more than three times the £120m it put aside for bad loans last autumn.
However, Barclays insisted that the number of people falling behind on debts “remained below historical levels”, explaining that the increased provision was the result of a “deteriorating macroeconomic forecast”.
Venkatakrishnan said: “Although we feel we are carefully positioned, we remain alert to signs of stress.” He added that the bank was planning to hire 1,000 employees in the coming weeks, effectively doubling the number of staff dedicated to helping struggling customers.
“While I’m pleased with the results, I’m very conscious that we live in unusually uncertain times,” the chief executive said. “This drives our conservative approach to managing our balance sheet and provision levels and our careful stance towards the expected deterioration in the global economy.”
Its rival Santander UK also reported an 11% rise in net interest in the nine months to the end of September to £3.3bn. It helped offset the £256m it put aside to protect against potential defaults, and contributed to a 4% rise in pre-tax profits to £1.5bn.
Meanwhile, Deutsche Bank also benefited from rising interest rates and the increase in trading. The German lender reported its highest third-quarter profits since the financial crisis, at €1.6bn (£1.3bn).