JP Morgan leaves Barclays at 'neutral' after third quarter interims

JP Morgan Cazenove has reiterated a ‘neutral’ rating on Barclays but raised its target price to 190p from 175p after the lender reported its third quarter interims.

Barclays on Thursday reported a 35% rise in third-quarter pre-tax profit to £837m as revenue from the fixed income division surged 40% to £947m. Excluding one-off items, profit came in at £1.7bn, surpassing analysts’ expectations of around £1.5bn.

However, the bank set aside a further £600m to deal with its payment protection insurance mis-selling scandal. The group is also trying to settle an investigation by US authorities into its sale of mortgage backed securities.

JP Morgan said pre-tax profit beat its expectations as strong income offset a one-off £320m provision top up in Barclaycard and £150m restructuring costs in corporate investment banking.

“Following Barclays Q3’16 results, we are upgrading our 2017/18 adjusted earnings per share estimates by 4% and continue to expect consensus to move up as JPM estimates are 15% above pre-results company-compiled 2018 consensus pre-tax profits.

“A key catalyst for the shares is likely to be any potential residential mortgage backed securities settlement, with every $1bn in incremental litigation costs equivalent to 22 basis points of capital tier 1 ratio.”

JP Morgan expects further litigation costs of £1bn in the fourth quarter for mortgage backed securities and £1bn in 2017. Tier 1 common capital ratio for fiscal year 2016 is 11.4% followed by 12.4% in 2017 and 13.3% in 2018.

Shares rose 0.01% to 190.52p at 1111 BST on Friday.