Confident Barclays Warns Of EU Banking Troubles

Barclays reported a drop in net profit for the first half of the year as the bank divests assets and handles an increase in nonperforming loans. Despite the H1 results, shares in the U.K. FI increased by more than 8 percent following its earnings announcement on Friday (July 29).

Reports said investors are confident in Barclays‘ decision to trim down its operations and focus on its U.K. and U.S. operations. And while Chief Executive Jes Staley said that the bank will weather the market uncertainty following a Brexit vote, he did say that the European banking industry is in flux.

“The European banking sector is challenged,” he said on Friday, the same day the bank also disclosed the results of its stress tests. “If you look at the top 12 banks across Europe, on average, they’re trading at a 50 percent discount to book value — that’s not healthy for the financial system, and that’s not healthy for the European economy.”

Barclays reported a decline of 21 percent in H1 profit before taxes to $2.71 billion compared to the same period a year ago, according to reports. But its core business saw a 19 percent year-on-year increase of pre-tax profit.

The bank assured investors, however, that, once the dust settles from its divestments, earnings would stabilize and improve. The bank has shed assets in Africa and across Europe.

“Our core business of the transatlantic consumer, corporate and investment bank generated a return on tangible equity of 11 percent,” Staley told reporters at CNBC, “that’s one of the best returns of any bank in the world, so our core business did quite well.”

While Barclays may be confident in its own future, the CEO said the European banking market is less stable.

“The markets are challenging, the capital markets are going through a significant restructuring and banks are going through a significant restructuring, using more capital, being more liquid,” he told reporters, “which is all making the financial system safer but does pose a challenge in terms of profitability.”