Barclays keeps City onside

Business at Barclays' investment bank was down in the first quarter of 2016, but not by as much as feared, and it was certainly better than many rivals. Strip out a loss on the cost of its own debt and profit actually beat forecasts quite easily. Investors liked that and decided to pay as much as 182p for shares in the lender, a 12-week high.

"This quarter we have made good early progress against the strategy update we announced on 1 March," said chief executive Jes Staley, who made his mark with some big decisions back then.

Just three months into the job, the American banker halved the dividend for the next two years and will simplify the bank into two divisions - UK retail and Corporate & International - which looks sensible. He's also put the African business up for sale, and we're hearing that a consortium led by former Barclays chief Bob Diamond is mulling a bid.

Of course, none of this has made the numbers look any prettier short-term. A profit of £793 million was down 25% on the year before, and even ignoring the own credit loss of £109 million versus a gain of £128 million in first-quarter 2015, Barclays made only £902 million, 44% less than the start of 2015.

That slump is largely due to over £500 million of additional losses on non-core assets - the so-called risk-weighted assets (RWAs) dumped in the "for sale" pile, mostly investment bank businesses, Southern European cards and Asian Wealth operations.

"As these deals complete we are reducing RWAs and, crucially, eliminating costs which have a direct impact on our profitability today and mask the true performance of our strong core business," says former JP Morgan man Staley. "This is the work we need to complete."

When it is, results should be transformed. Profit from Barclays' core business jumped by 18% in the three months ended March to over £1.6 billion. Tangible net asset value (TNAV) per share also rose 11p quarter-on-quarter to 286p, while the common equity tier 1 - a measure of financial strength - came I as expected at a healthy 11.3%.

This is all encouraging stuff, but it's the modest 4% decline in business at the corporate and investment bank division to £2.6 billion that triggered the earnings beat this time. Citigroup, JP Morgan, Bank of America and Wells Fargo all did worse.

Underlying profit still fell sharply though, down 31% to £701 million, with the banking and markets operations down 5% and 4% respectively, the latter not helped by low volumes knocking equities income by 13%.

"Overall these are reassuring numbers and, with Barclays trading at a price/TNAV of 0.6 times, we believe the stock should trade significantly higher," argues broker Haitong Securities, repeating its 'buy' rating and 250p price target.

Low interest rates are typically bad news for the banks. Losing half the dividend is a big blow to Barclays' shareholders, too, but Staley is certainly making his mark and investors seem willing to back the recovery, for now.

Readers might also be interested in John Burford's view on Barclays shares. The technical analyst correctly called them down from 280p to 150p. Find out what he thinks will happen next here.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.