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Q2 Banks – P3 – BARC Q1 reaction
Barclays (BARC)
Barclays reported a £764M loss, reflecting £1.4B litigation charges over mis-selling of mortgage-backed securities, as well as £400M in PPI provisions. Operating costs (-6% YoY) were down, pointing to increased cost efficiency. Q1 net operating income of $5.07B (-4%) beat the £5.03B estimate, with pre-tax profit (excluding litigation) of £1.72bn (+1%) beating £1.63bn consensus.
Market reaction to Q1 results reflected these mixed messages, with the shares rising at the opening of the market session but giving up most of the day’s gains around mid-day (-1.4% day fall).However, core Tier 1 capital ratio of 12.7% (down from 13.3% in FY results) missed analyst estimate of 12.9% and disappointed those investors who were hoping that Barclays would be able to start paying better dividend going forward.
The following days also disappointed bullishly-minded investors, with Barclays shares trending lower both through the rest of the week and most of the following week.
Wider look
Investors who are interested in Barclays shares had several ways to benefit from announcement of Q1 results on 26 April. They could either open a Short position a day before, for example selling shares at 215p, then benefiting from the intraday fall to 208p after results came out.
On a £10,000 Short position and paying a deposit of around £2,000, this share price movement would have represented a potential £326 in profit before factoring in commission (a 16.3% return on initial deposit)
The other option would have been to wait until next week and opening a £10,000 Long position around 201p, then profiting from a rebound to 214p a week after. Such an investment could have yielded £646 in profit (excluding overnight financing and commission). Note that if the shares had fallen to the same degree, investors would have incurred a loss.
To take advantage of tradable opportunities around banks, investors need to pay attention not just to the days when results are announced, but also to market movements before and after.
Source: CMC Markets, 19 July 2018
Source: CMC Markets, 19 July 2018
Example of a notional Barclays deal ticket.
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Prepared by Michael van Dulken, Head of Research
