All Barc, All Bite

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What's going on?

British investment bank Barclays reported higher-than-expected third-quarter revenue and profit late last week, sending its shares up by 2%. Woof.

What does this mean?

Barclays’ investment banking activities – seen by some as risky – were largely to thank for its strong results. The amount it earned from helping investors chop and change their bond, commodity and currency investments last quarter was 15% up on a year ago – much higher than the growth reported by its US rivals, who are now looking on with tails between their legs.

But Barclays could be about to go through a ruff patch: it warned investors that lower worldwide interest rates would narrow the difference between the interest it earns and pays out (its “net interest margin”), potentially putting next year’s earnings in the doghouse.

Why should I care?

For markets: Barclays one, activist investor nil.

Earlier this year, an activist investor in Barclays – that is, someone with a big enough stake to sway the company’s strategy – insisted the company sell off its investment banking segments and focus on its more stable savings and loans business. But with investment banking proving its worth and low interest rates making future loans less profitable, he might let the company off the leash so it’s free to chase squirrels and fetch growth wherever it wants.

The bigger picture: Some banks can take fewer risks.

Swiss investment bank UBS reported better-than-expected third-quarter earnings last week too. But unlike Barclays, it had a relatively more stable part of its business to thank. “Wealth management” – looking after high net worth individuals’ investments for a fee – tends to be a big earner whatever the state of the economy. When times are good, investors are happy to pay to have their money looked after and then collect the profits. And when times are shaky, the advice that typically comes with this kind of money management can put minds at ease and limit losses.

Originally posted as part of the Finimize daily email.

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