Barclays Shares Surge Despite Falling Profits and Beat Forecasts

Barclays experienced a surge in its stock value on Thursday following its report of better-than-expected performance, despite a 13% decline in first-quarter profits driven by decreased fees and the impact of rising interest rates, prompting UK customers to seek out more favorable alternatives.

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The bank recorded a 4% decrease in total income, amounting to £6.95 billion ($8.69 billion), and a 13% decrease in attributable profit, reaching £1.55 billion. Nevertheless, these figures surpassed forecasts from eight analysts, who anticipated total income of £6.89 billion and attributable profit of £1.46 billion.

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Listed on the London Stock Exchange, Barclays' shares, under the ticker symbol BARC, saw a 5% increase on Thursday, contributing to a 30% rise in the year-to-date. This growth comes as Barclays pursues extensive initiatives to enhance its performance, including a plan to reduce annual costs by £2 billion through workforce reductions and office space optimizations.

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Analysts at Peel Hunt, led by Robert Sage, characterized Barclays' results as a "solid start to the year with good progress being made towards unchanged financial targets," despite expectations of a more challenging performance amid ongoing turnaround efforts.

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The bank's investment banking division, which represents nearly half of its revenue, experienced a 7% decline in income to £3.33 billion in the first quarter, primarily due to reduced fee income from advisory and deal-making activities amid a slowdown in deal activity.

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However, Barclays maintained its outlook for 2024, citing a 4% increase in income from its US consumer arm, driven by robust performance in its credit card business, which partially offset lower income from its investment bank and UK corporate and retail banking divisions.

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In the UK, Barclays witnessed a £17 billion decrease in deposits within its British retail division in the year leading up to the first quarter of 2024, as customers migrated to competitors offering higher interest rates on deposits. Additionally, the value of Barclays' UK loans portfolio declined by £7 billion as customers scaled back borrowing in response to elevated interest rates, currently standing at 5.25%.

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Consequently, income from Barclays UK division decreased by 7% to £1.82 billion, despite the bank achieving higher margins on interest rate differentials between the Bank of England's rates and those offered to customers.

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In pursuit of its goal to reduce costs by £1 billion in 2024, Barclays realized savings of only £200 million in the first quarter, prompting analysts to question the feasibility of achieving these objectives without further workforce reductions.

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