(Bloomberg) -- Barclays Plc third-quarter results offered signs that executives are delivering on the lofty promises they made earlier this year to boost the bank’s lagging returns.
Better-than-expected income from its two biggest divisions fueled a 5% increase in total revenue to £6.55 billion, which topped analyst expectations. Pretax profit for the period soared 18% to £2.23 billion.
“I was looking for four things in our performance: income stability, cost discipline and progress on efficiency savings, credit performance and a robust capital position,” Anna Cross, Barclays’ finance director, said on a conference call with journalists. “On all four, we are where we expect it to be.”
Barclays shares rose as much as 4.5% on Thursday, touching their highest level in nine years, before paring those gains to 3.7% at 12:38 p.m. in London. The stock had risen 55% so far this year through the close of trading Wednesday.
The British bank posted a surprise increase in fixed-income trading revenue while it’s stock traders generated £692 million in income in the period, topping the £688 million average of analyst estimates compiled by Bloomberg.
The company also now expects full-year net interest income to be greater than £11 billion, up from an earlier forecast, as it continues to benefit from stubbornly high interest rates. Revenue from the company’s UK consumer business climbed 4% to £1.95 billion in the quarter.
The results are a key win for Chief Executive Officer C.S. Venkatakrishnan, who kicked off a multi-year plan to boost returns at Barclays in February by plowing more capital into its UK operations and focusing on more profitable businesses and clients in its investment bank.
The company has also vowed to cut about £2 billion in costs in the coming years — a plan that executives said they’re on track to complete.
The better-than-expected trading results mirror those of Barclays’ US rivals, with the five biggest Wall Street banks on track to post their best trading year since the onset of the Dodd-Frank era.
Barclays also benefited from an increase in deal activity in the quarter, with advisory revenue more than doubling to £186 million. That was higher than the £144 million that analysts in Bloomberg’s survey were calling for.
The performance by the bank’s traders and dealmakers was partially offset by £85 million in losses that Barclays booked that were tied to its leveraged finance portfolio after it struggled to get rid of some of the debt.
The company has long faced questions from shareholders about the size of its investment bank because the unit consumes more risk-weighted assets — a measure of capital — than any other part of the bank even though it often produces some of the company’s lowest returns.
At 8.8%, the unit’s return on tangible equity — a key measure of profitability — was the lowest among all of Barclays’ operating divisions in the third quarter. Still, that was an improvement from 8% in the same period a year ago.
Barclays is “happy with the progress so far,” Venkatakrishnan said. “Always want more progress.”
Earlier this month, Taylor Wright and Cathal Deasy, who lead Barclays’ advisory and underwriting businesses, reiterated that they’re looking to increase the bank’s market share across investment banking to the roughly 4% the company last captured in 2019. That would be an increase from the 3% it held last year.
Firmwide net-interest income was also helped during the quarter by Barclays’ structural hedge, a balance sheet maneuver lenders use to reduce rate sensitivity. That hedge also gave executives confidence in Barclays’ ability to navigate a changing macroeconomic environment as central banks around the world have begun to cut interest rates.
“Given the ongoing healthy support from our structural hedge, we remain confident on the strength of the income profile of our business in a falling rate environment,” Venkatakrishnan said.
(Updates with information about structural hedge in penultimate and final paragraphs.)
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