Barclays profits surge 17% as investment bank cashes in on trading spurt

Russ Mould, investment director at AJ Bell, said: “Barclays’ interim results did not get the same warm welcome as those of Unilever, even though the bank’s second-quarter pre-tax profit of £3.2 billion beat the consensus forecast of £3.1 billion, the board sanctioned a huge increase in the dividend and topped up the share buyback programme by another £1 billion and boss C.S. Venkatakrishan raised profits forecasts for the year.

“The indifference may lie with the mix of earnings and concerns over quality rather than quantity, as the investment bank provided the bulk of the upside profit surprise while the sale of an American Airlines co-branded credit card operation and the acquisition of Best Egg gave a bit of a messy feel to the numbers.

“However, this is nit-picking, and the headline is that the second-quarter’s pre-tax profit was nearly a third higher than a year ago, while the first-half dividend is up by nearly 100 per cent and total first-half cash returns, including buybacks, are up by nearly 70 per cent.

“The UK economy may not be firing on all cylinders, but it is not dropping in a hole either, while the US continues to perform.

“Global interest rates are relatively stable, net interest margins are strong, sour loan losses modest, and the investment bank is able to make the most of volatility in the financial markets, across equities, bonds, currencies, and commodities.

“If Barclays is ever going to make serious money it is now, and the bank is delivering, helped by how it is keeping its nose clear and incurring only modest regulatory and litigation costs; they came to just £4 million between April and June.

“All of this helps to explain why Barclays’ shares trade at 1.2 times tangible net asset value per share, and not at the discount that prevailed throughout the 2010s and early 2020s.

“Perhaps the only worry is whether this bumper period attracts the attentions of a cash-strapped government, which is looking for ways in which it can raise funds to pay for its policy agenda.

“JP Morgan Chase’s Jamie Dimon has already railed against the possibility of higher taxes on bank earnings, but such a levy would be an easy sell to politicians and the public alike, even if the memories of the Great Financial Crisis are fading, given it started nearly 20 years ago.

“Hiking the dividend and adding to the share buyback programme will hardly help to convince policy makers that such a levy cannot be afforded, or will damage lending, either.”