Barclays (LON:BARC), the prominent British bank and a significant player in the banking industry according to InvestingPro Tips, has indicated significant forthcoming cost reductions and potential organizational changes due to challenging market conditions. These measures were announced in the wake of the bank's Q3 pre-tax profit report of £1.9bn ($2.33bn). While surpassing analysts' expectations and aligning with InvestingPro Tips' prediction of the company's profitability this year, it fell short of last year's £2 billion. This announcement led to an 8% drop in Barclays' shares on Tuesday, a decrease also reflected in InvestingPro Data's 1-week price total return of -13.42%.
The bank's CEO, C.S. Venkatakrishnan, acknowledged the pressures brought about by the higher cost of living, mortgage margin pressure, and lower deposit volumes. In response to these challenges, Barclays is exploring ways to enhance cost-efficiency and productivity, which could lead to substantial adjustments in the global workforce size. A detailed update on these plans will be provided with the full-year financial results.
Barclays, despite benefiting from higher interest rates that increased mortgage costs and income this year, faces a highly competitive savings market with higher savings rates and increased volatility in financial markets. This resulted in a 6% drop in UK deposits due to customer migration seeking higher returns. Consequently, Barclays UK is not anticipating any deposit growth in Q4, leading it to lower its net interest margin (NIM) forecast. Additionally, InvestingPro Tips notes that the bank's revenue growth has been slowing down recently, and it suffers from weak gross profit margins, which may further exacerbate these challenges.
Adding to the bank's challenges is a 6% year-on-year fall in income from its Corporate and Investment Banking Division due to market volatility. The bank also increased its credit impairment charges to £433 million, up from £381 million last year. This aligns with InvestingPro Data's report of a -9.14% quarterly revenue growth for FY2023.Q2.
Barclays' challenges have raised concerns for other UK banks like Lloyds (LON:LLOY) and NatWest (LON:NWG). JPMorgan (NYSE:JPM) analysts suggested potential negative implications for these institutions due to the margin pressures identified by Barclays.
Notably, Barclays' performance was bolstered by its U.S.-based credit cards business despite an overall bleak interest margin outlook, particularly in the UK. The bank has set aside an additional £433m for potential bad loans amid a return to pre-pandemic levels of delinquencies in its U.S. cards unit. It also reported a revenue drop in its fixed income, currency, and commodities division due to falling market volatility. However, Barclays has been profitable over the last twelve months, as highlighted by InvestingPro Tips, and has raised its dividend for three consecutive years, indicating some resilience amidst these challenges. For more insights like these, visit InvestingPro, which offers an additional eight tips for Barclays.
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