Barclays delivered a disappointing third quarter on Thursday, missing profit forecasts. The culprit was its trading desk, not the core bank.
Fixed income, currencies and commodities (FICC) trading, which covers bonds, foreign exchange and derivatives, fell 21% below what analysts had expected.
FICC accounted for more than three quarters of the investment bank's total income shortfall. UBS analysts noted Barclays may not be the last European bank to suffer a similar miss this quarter.
The equities trading desk went some way to offsetting the damage, beating forecasts by 18%. It was not enough to prevent group pre-tax profit coming in 4% below consensus.
The key question is whether Barclays can hit its full-year income target of around £31.5 billion. Management needs fourth-quarter revenues to rise around £500 million year on year.
UBS flagged that as a stretch, given investment banks earn less in the fourth quarter than the third as a matter of seasonal pattern. Management pointed to a healthy mergers and acquisitions pipeline and strong financing momentum.
Away from the investment bank, the picture was more encouraging. Barclays UK net interest margin, which measures the difference between what the bank charges borrowers and pays depositors, edged up quarter on quarter.
UK retail lending grew 6% year on year, corporate lending 13%. Loan impairments, the charge banks take when borrowers default, came in 14% below forecasts, suggesting credit quality remains sound.
RBC Capital Markets analyst Benjamin Toms cut his 2027 profit estimate by 3%, citing higher expected impairments, but kept his 525p price target and Outperform rating.
UBS trimmed its target by 2p to 588p, also keeping its Buy recommendation. Both brokers called the stock cheap at 5.5 times their 2028 earnings estimates.
Both noted the frustration with restructuring costs. Barclays spent £430 million cutting costs this year, but savings are being absorbed by business growth, inflation, and investment spending.
A regulatory development improved the outlook. A 59-basis-point reduction in Pillar 2A, a bank-specific capital buffer set by regulators, arrives in January and more than offsets incoming Basel 3.1 rules.
That frees up capital for shareholder returns. Barclays is targeting more than £15 billion in dividends and buybacks between 2026 and 2028. Both brokers think the shares, at 409p, undervalue that prospect.
