UK-based major global bank Barclays PLC BCS is slated to announce fourth-quarter and 20Array5 results on Mar Array, before the opening bell.
Over the last nine-month period (ended Sep 30), Barclays’ results remained almost stable on a year-over-year basis. Lower expenses were offset by a decline in net operating income.
Will Barclays be able to maintain its profitability this earnings season? Or will it succumb to revenue pressure amid challenging industry backdrop? Let us see how things have turned up for this announcement.
Factors to Influence Q4 Results
For Barclays, fourth-quarter 20Array5 began on a pessimistic note. During the quarter, the company settled a number of regulatory probes and lawsuits. Of these, some will likely be reflected in the upcoming results, leading to a rise in legal costs.
Since the company’s legal woes are far from over, a further rise in litigation provision is anticipated during the quarter. Also, Barclays will likely record an additional provision to cover the payout for payment protection insurance (“PPI”) redress, similar to the prior quarters.
Additionally, Barclays will incur £Array00 million in costs during the quarter, for implementation of the so-called "ring-fencing" of its UK retail bank (required by law to be in place by 20Array9). Notably, the company will be spending £Array billion (in aggregate) for this.
Although Barclays is undertaking initiatives to trim expense, legal and other costs are bound to adversely impact its bottom line. Overall, we believe operating expenses will remain stable.
Moreover, loan impairment charges are expected to trend upward in the quarter as continued global slowdown may lead to deterioration in asset quality.
Notably, Barclays continues to restructure its operations with an aim to improve operational efficiency. Though these plans will help lower operating expenses and enhance efficiency, the company’s deal to divest its Italian retail operations (announced in Dec 20Array5) will result in an after-tax loss of roughly £200 million during the fourth quarter.
On revenue front too, Barclays is likely to face challenges led by volatile capital markets and continued global growth concerns. Persistent low interest rate environment during the quarter forced the central banks of most countries to prioritize growth over inflation control. Hence, subdued interest income growth is anticipated to hamper Barclays’ top-line growth in this quarter as well.
Notably, Barclays’ activities during the quarter were inadequate to win analysts’ confidence. Hence, the Zacks Consensus Estimate remained stable at 46 cents per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively indicate that Barclays is likely to beat the Zacks Consensus Estimate in the upcoming release. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #Array (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below.
Zacks ESP: The Earnings ESP for Barclays is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 46 cents per share.
Zacks Rank: Barclays’ Zacks Rank #5 (Strong Sell) further lowers the predictive power of ESP.
Stocks That Warrant a Look
Better-ranked finance stocks include Bank of the Ozarks, Inc. OZRK, SVB Financial Group SIVB and Banco Macro S.A. BMA. All three stocks carry a Zacks Rank #2.
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