Fitch: Barclays' 1Q17 Results Underpinned by Retail; Weaker on Trading
(The following statement was released by the rating agency) LONDON, May 02 (Fitch) Barclays plc's first quarter results benefitted from resilient retail and highly profitable cards businesses, while the investment bank had mixed results, says Fitch Ratings. The group's return on tangible equity (RoTE) of 9%, excluding a sizeable impairment of the goodwill relating to its African business held for sale, showed an improvement compared to 1Q16, helped by a lower negative impact from the shrinking non-core unit (Barclays Non-Core (BNC)). Barclays UK's performance was broadly stable yoy and the division's RoTE of 21.6% was high relative to the overall group. Income benefitted from deposit growth, lower funding costs and a small gain relating to Visa Inc., which offset margin pressure affecting especially its mortgage portfolio. Operating expenses were also stable despite investments in cyber resilience and structural reform implementation costs. Underlying credit impairment charges were stable according to management, and delinquency rates improved slightly compared to 1Q16. Barclays International fared well overall, and it's RoTE of 12.5% was underpinned by the international Consumer Card and Payments (CC&P) business (income up +19% excluding one-off items) and a good performance in banking fees (income up 51% yoy) in a buoyant debt issuance market. The division is exposed to US dollar appreciation, which benefits revenue more than it weighs on operating expenses. Performance in CC&P benefitted from balance and card spend growth. Impairments and delinquency rates increased slightly, but a large portion of weaker credits have been sold and are not expected to weigh on future impairments. The bank completed a subprime portfolio sale in the US towards the end of the quarter and this, together with the impact of the integration of a high quality partnership portfolio, should gradually lead to an improvement in the quality of the US cards portfolio, according to management. Trading underperformance reflected missed opportunities in US rates and US equity derivatives markets, despite supportive client volumes, while credit trading continued to perform well driven by the flow business. Corporate lending income improved, but was more than offset by losses on fair value hedges. The group continued to run-down BNC towards the guidance of around GBP25 billion risk-weighted assets (RWA) by end-1H17. The division incurred a pre-tax loss of GBP241 million in the quarter and Barclays reiterated the guidance that in 2017 the loss could amount to GBP1 billion. The fully-loaded CET1 ratio increased to 12.5% driven by internal capital generation, which offset the impact of the redemption USD preference shares, share purchases for employee awards and contributions to the pension plan. The redemption of USD preference shares results in an immediate hit to capital but lower preferred dividends should benefit funding costs in the longer term. This compares with a target CET1 ratio of just below 13% in the medium term, sized by the bank as 1.5%-2% above minimum requirements, which is intended to provide an adequate buffer against drawdowns in a regulatory stress test. In progressing towards this target we expect the benefits from accruing profits and deconsolidating BAGL (guided to be around 75bp) to cushion any potential hit from still unresolved legal and regulatory disputes or consumer redress costs. Management expects capital requirements to be similar across the future ring-fenced bank, non-ring-fenced bank and group (currently 10.8%, excluding any potential Prudential Regulatory Buffer (PRA) buffer) and that the entities will maintain similar buffers above the requirements. The impairment of goodwill related to Barclays Africa Group Limited (BAGL) was capital neutral. Following accounting deconsolidation, the bank would need to recycle a currency translation loss of around GBP1.2 billion through P&L, but this too will be capital neutral. The group's liquidity was comfortable, as the liquidity coverage ratio (LCR) increased to 140% and the liquidity pool increased to GBP185 billion. This was boosted by issuance of GBP6.3 billion minimum requirement for own funds and eligible liabilities (MREL)-eligible debt and capital and a GBP4 billion participation in the Bank of England's term funding scheme, which was motivated by management as a means to access low-cost funding and diversify funding sources. The Bank of England has confirmed Barclays' individual indicative MREL requirement in line with previous guidance of 28% by 2022, including requisite buffers. Contact: Claudia Nelson Senior Director +44 20 3530 1191 Fitch Ratings Limited 30 North Colonnade London E14 5GN Ioana Sima Associate Director +44 20 3530 1736 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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