How Barclays has exceeded City expectations 

This lender's shares are above their pre-Covid price, but have still lagged peers. Our head of markets picks the highlights from its latest results.

Amid a banking results season which has so far been light of cheer, Barclays (LSE:BARC) has managed to nudge the dial somewhat.

In terms of momentum, the picture is positive, with most fourth-quarter metrics not only improving but also being ahead of expectations. For the year as a whole, there is also a general movement towards progress, although as ever some metrics will need to be watched more closely.

Pre-tax profit for the year of £8.4 billion is reportedly a record for the bank and is a significant improvement from the previous year’s number of £3.1 billion. As has become the theme over the last year for the banks, the release of bad debt provisions is a major driver to profits given an improving economic backdrop and a relatively benign credit environment. For Barclays, the release of credit impairments totalling £653 million compares to a charge of £4.8 billion in the previous period.

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Other key metrics are mixed to positive, with the Net Interest Income (NII) and Net Interest Margin (NIM) figures dipping slightly, while the capital cushion remains robust but unchanged at 15.1% year on year. The bank nonetheless remains awash with capital, as evidenced by a Liquidity Coverage ratio of 168%, up from 162% and a liquidity pool in excess of regulatory requirements.

Broad increases in consumer spending and mortgage lending have also propelled income generally, while new records were also being hit at the Corporate & Investment Bank, with a 14.9% Return on Tangible Equity (ROTE) number accompanied by a pre-tax profit of £5.8 billion. Indeed, the ROTE figure remains one where Barclays is currently racing ahead of the pack, reporting a return for the year of 13.4% versus the previous year’s number of just 3.2%.

It is among the key metrics where further focus is needed. Apart from the slightly flagging NII and NIM numbers, the cost/income ratio has ticked higher to 66% from 64%. Barclays is expecting a modest increase in costs generally over the coming year, due to not only planned investment spend but also inflationary pressure.

Nonetheless, the generally accommodating environment and Barclays’ own rich seam of diversified income has also reaped rewards for shareholders. The increased dividend payment implies a yield of around 3.2%, which is adequate if not punchy in the current interest rate environment, while the announced £1 billion share buyback programme effectively trebles the amount of shareholder returns compared to the previous year. By the same token, the bank has set out its stall to maintain such payments should the current positive outlook be maintained.

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The shares have surfed the wave which has swept the banking sector along of late, and have risen by 23% over the last year, as compared to a hike of 13% for the wider FTSE100. With an upbeat outlook coming from the company itself, the market consensus of Barclays as a "buy" is most likely to remain intact.