Barclays rallies to five-month high

After an awful 12 months, culminating in the Brexit vote, Barclays has outperformed most of its domestic rivals. In fact, only HSBC has done better since the referendum. A surge in third-quarter profit, announced Thursday, certainly underpins confidence in the business and boss Jes Staley's strategy to revive fortunes.

A pre-tax profit of £837 million in the three months to September was much lower than in the second quarter - weaker income and higher operating expenses - but it was up an impressive 35% on this time last year.

Strip out so-called one-offs including another £600 million of payment protection insurance (PPI) provisions - which may not be the last - and underlying pre-tax profit grew 44% to £1.7 billion. That's way above consensus estimates for around £1.3 billion.

Despite stable total income, profits at the UK business shrunk to just £75 million from £720 million a year ago. Blame a big increase in impairments, litigation and other conduct provisions, including £320 million following a more conservative approach to impairments at Barclaycard.

Numbers from the international operation were much better across the board year-on-year, with pre-tax profit up 70% to almost £1.1 billion. It more than doubled at the corporate and investment bank (CIB) to £885 million, driven by a well-publicised surge in bond trading after the EU referendum, and as traders speculate on interest rate moves. Fixed income currencies and commodities (FICC) revenues grew 40% year-on-year.

Staley's plan to sell Barclays Africa began in May with the disposal of a 12.2% stake. That added 10 basis points to the common equity tier 1 ratio (CET1), although a shift in the bank's defined benefit pension scheme from £0.8 billion surplus in December to £1.1 billion deficit, took off 30 basis points. It's why CET1 stuck at 11.6% this time.

Offloading the entire 62.3% stake over the next 2-3 years is tipped to improve the capital ratio by "at least" 100 basis points, Staley said in March. But that's still way below Lloyds which yesterday flagged up a 40 basis-point increase since June to 13.4% after dividend payments.

Up as much as 3% Thursday to its highest since 31 May, Barclays shares now trade on little more than 0.6 times tangible net asset value (TNAV) per share of 287p – down a couple of pence due to PPI the pension deficit – and on just 10 times Deutsche Bank's earnings per share estimate of 18.36p for 2017.

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