Barclays Q3 profits beat expectations as costs slashed - UPDATE

The bank, which it emerged on Thursday morning has been sued for $10bn in damages by a Saudi businessman, generated a profit for the third quarter of £1.59bn, up 14% on the £1.39bn from the same period last year and well ahead of the £1.1bn consensus prediction.

For the nine months of the year so far, adjusted profit before tax has risen 5% to £4.94bn as a 38% reduction in the investment bank has been largely offset by improved performance across the majority of the core personal and corporate banking business and Barclaycard credit arm. A third interim dividend of 1.0p will be paid on 12 December.

"Barclay’s transition from investment banking towards retail banking continues," wrote analysts at Citi, "with the three retail divisions accounting for 80% of third quarter core profitability. In the long-term this could lead to a re-rating."

Chief executive Antony Jenkins said the results showed "further steady progress" in the rebalancing of the bank, with the its core businesses together delivering a return on investment of 10.5%.

"The investment bank's performance in the quarter was disappointing, but we have been able to offset that within the rebalanced group and still deliver good core performance."

Barclays, which recorded a £364m loss on the sale of its Spanish business, took £500m for litigation charges for rigging foreign exchange markets, reversed £461m of Lehman litigation charges, topped up its PPI provision with another £170m but also released £160m in respect of the interest rate hedging provision.

The balance sheet was improved, with net tangible asset value per share up 8p since June to 287p and the fully loaded Common Equity Tier 1 (CET1) ratio increased to 10.2% from June's 9.9%, and likely to rise to 10.4% if the announced Spanish sale completes.

Barclays' estimated leverage ratio increased ten basis points to 3.5% since the half-year.

However, this is well shy of the expected tougher leverage ratio the Bank of England (BoE) is expected to impose, with industry sources predicting a ratio of between 4% and 5% will be announced at 2pm on Friday.

Total operating expenses were cut 4% to £11.7bn thanks to improvements across most of the businesses.

While it expected "low single digit" upgrades to full year consensus earnings forecasts, broker Citi added that in the near-term much will depend on the outcome of the leverage ratio review.

"If the outcome is at 4.0%-4.5% by 2017 Barclays may enjoy a relief rally. In contrast a greater than 5.0% requirement would be disappointing."

Broker Shore Capital said it believed the capital position "can still be addressed without recourse to further equity issuance, noting the good progress the company is making in running off its non-core assets".

UBS added: "While things may be over-shadowed by concerns ahead of the BoE leverage announcement on Friday, Barclays continues to move in the right direction on capital and leverage."

Analysts at Investec were still fans of the stock on a value perspective. They wrote: "We empathise with investors’ fear of a fresh regulatory assault tomorrow on leverage requirements, but on 0.7 times 2015 expected tNAV [triple net asset value] we’re still buyers."