What's going on?
Despite signalling the end of its recent restructuring, British bank Barclays saw its stock fall almost 3% on Thursday after it reported profits that fell short of expectations.
What does this mean?
According to Barclays’ CEO, Britain’s second largest bank is emerging from a turnaround plan that started last year, which re-focused its efforts on investment banking (e.g. trading stocks and bonds and advising big corporations). The good news is that those parts of the business saw revenues jump 21% versus a year ago, and its CEO has said the bank is ready to expand by hiring more employees. However, Barclays still has a ways to go to convince markets of its turnaround.
Why should I care?
For the stock: Markets will be looking to see if Barclays can sustainably boost its profits.
Investors were likely concerned by the bank’s higher-than-expected spending in the fourth quarter, since higher costs typically translate into lower profits (all else being equal). The key for Barclays is whether those costs will come down in the future (as some of them were reportedly “one-offs”), and if it can grow its revenue at the same time. In short, investors want it to become more profitable than it is right now.
The bigger picture: Investment banks benefited from the market volatility associated with Donald Trump last quarter.
As middlemen, investment banks’ profits tend to increase when more trades occur – and Trump’s election sparked huge waves in the market that led to an increase in customer trading. Barclays benefited more than many other European banks since it recently shifted more resources to its investment banking arm (while others, like Deutsche Bank, have pulled back). Most of the big US banks, like Goldman Sachs, also benefited.