Disclosure: I own shares of Barclays.
Notwithstanding this, group pre-tax profit was down 20.7% to £2,063m. Group return on average tangible equity fell from 6.9% to 4.8%.
One bright spot was that Barclays’ CET1 ratio has risen from 11.4% to 11.6% so far this year.
For value investors, a further highlight was that tangible net assets per share increased to 289p during the first half, up from 275p at the end of 2015. Barclays’ continued actions to dispose of non-core assets, including the initial 12% placing of Barclays Africa, seem to be having a positive effect on the balance sheet. Even after today’s gains, the stock trades at a 45% discount to NTAV.
The problem — or at least the risk — is that Barclays still appears to have a mountain to climb. This is best expressed by the contrast between the profits from the bank’s core divisions and the losses from its non-core division:
- Core pre-tax profit 1H16: £3,967m (1H15: £3,347m)
- Non-core pre-tax loss 1H16: £1,904m (1H15: £745m)
There appears to be a profitable bank waiting to escape from a whole load of loss-making dross. The question is whether Barclays can dispose of its non-core assets quickly and cheaply enough.
A second question is whether the bank’s profit margins can survive further cuts to interest rates, as now seem possible in the UK. CEO Jes Staley said today that while a base rate cut to 0.25% would have little impact on margins, a drop to 0% could be more “significant”.
Banks have already taken longer than expected to recover. Today’s results suggest progress is being made but make it clear that there’s still much further to go. From my relatively non-expert viewpoint, the macroeconomic context doesn’t seem likely to accelerate Barclays’ recovery.
However, the bank’s balance sheet is improving and a capital raise appears unlikely. Mr Staley has already cut the dividend in half. My view is that the stock’s discount to net asset value should provide some downside protection, as long as the profitability of Barclays’ flagship UK banking and Barclaycard operations isn’t called into question.
One final thought is that on a two-year view, the chart below suggests to me that Barclays shares might be due a rebound — note the improving RSI and Momentum readings:
For now, I continue to hold.
Disclaimer: This article represents the author’s personal opinion only and is not intended as investment advice. Do your own research or seek qualified professional advice before making any trading decisions.