Shares of Barclays (BCS +1.86%) fell as much as 10.1% early Tuesday, then settled to trade down 6.4% as of 2 p.m. ET after the bank announced a better-than-feared decline in quarterly profits, but followed by warning of a weaker net interest margin going forward.
NYSE: BCS
Key Data Points
On Barclays' weak third-quarter results
On the former, the U.K.-based bank announced a third-quarter net profit of 1.27 billion British pounds (or roughly $1.56 billion), down 16% year over year but also slightly above analysts' consensus estimates for 1.18 billion pounds.
Profits were largely hurt by the relative underperformance of Barclays' investment banking segment, where fees declined 16%.
CEO C. S. Venkatakrishnan lauded the company's roughly 11% return on tangible equity (RoTE) "against a mixed market backdrop, as we continued to manage credit well, remained disciplined on costs and maintained a strong capital position."
Major cost cuts on the way
Barclays also warned that it now expects 2023 net interest margin (NIM) -- the difference between interest received on loans and interest paid for deposits -- to be in the range of 3.05% to 3.1%, down from 3.15% previously. The bank had previously suggested net interest margin would come under pressure amid increased competition for savers' deposits as rates have increased.
What's more, management warned that "material additional" cost-cutting charges will likely be announced later this year as it evaluates "actions to reduce structural costs to help drive future returns."
In the end, this earnings announcement was undoubtedly a mixed bag. But given the prospect of cost-cutting charges and its reduced outlook for net interest income -- and because the market tends to be a forward-looking machine -- it's no surprise to see investors punishing this leading bank stock in response.
