Barclays: Glass half-full or half-empty?

The indelible stain left on these first quarter numbers by litigation and conduct issues masks the reasonable progress which Barclays (BARC) is making.

The bank itself highlights that its restructuring is complete and that legacy issues, most notably the fine relating to US residential mortgage-backed securities, can now be viewed in the rear-view mirror.

Operationally the investment bank had a strong start to the year, with pre-tax profit sharply higher and impairment charges significantly lower. Elsewhere, the increase in the dividend shows an element of confidence in the bank’s prospects, whilst also making the projected yield a respectable 3%, whilst the overnight announcement of the tie-up with PayPal (PYPL) is an interesting development.

The litigation costs, however, have had an inevitably negative impact on key metrics, with the cost/income ratio and capital cushion both suffering as a result.

Source: interactive investor         Past performance is not a guide to future performance

The UK business saw a 13% rise in impairment charges, overall income dipped and the resultant pre-tax loss will leave investors hoping that this particular quarter can be consigned to history as a necessarily painful one.

Meanwhile, it remains to be seen whether the activist investor stake will result in a distraction for management, should its proposals begin to garner support.

In all, this update opens the debate on whether Barclays’ glass is half-full or half-empty. The initial mark down of the share price was somewhat inevitable given the bank’s overall loss, and added to a 4.4% decline in the price over the last year, as compared to a 1.4% rise in the wider FTSE 100 (UKX) over that period.

Of late, the shares have performed rather better, adding 17% in the last six months, and the share price is now up on the day, but the next update should provide more clarity on the underlying situation.

The market is not yet prepared to commit to the cause, with the general view of the shares as ‘hold’ remaining intact.

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