Barclays (LSE: BARC)shares are rising this morning after the bank posted a better-than-expected set of Q3 results. Indeed, for the third quarter Barclays reported adjusted pre-tax profits of1.59bn, compared to the average analyst estimate of 1.1bn.Group adjusted profit before tax increased 5%.
Unfortunately, Barclays upbeat results announcement was overshadowed by a more serious matter. The bank is oneof a handful of market-leading forex dealers at the centre of a global investigation into the $5.3tn-a-day currency market. As a result of this investigation, alongside todays results, Barclaysrevealed that it was setting aside 500mas a provision for any fines stemming from this investigation.
In addition, the bank announced an extra provision of 170m to settle claims of mis-selling payment protection insurance.
Results breakdown
On the face of it, Barclays results look okay and beat expectations, which is always news. However, after digging through the numbers Ive spotted some interesting figures that reveal the how the bank has managed to achieve this performance.
For example, even though Barclays profit came in ahead of expectations, the companys investment banking arm, which usually provides around 50% of group profit before tax, reported a slump in pre-tax profit from 465m to 284m.
But while Barclays investment bank struggled during the period, other divisions performed strongly. In particular, Barclays personal and corporate banking arm reported pre-tax profit growth of 18%. Barclaycard reported pre-tax profit growth of 21%.
The strong performance of Barclaycard andBarclays personal and corporate banking arm, along with a lower level of impairments, helped Barclays increase overall adjusted profit before tax by 5%.
Multiple headwinds
Still, even though Barclays has impressed with todays results, the bank is still facing multiple headwinds.
Indeed, while the bank sailed through the ECB stress tests, the results of which were released earlier this week, Barclays still has to pass the Bank of Englands stress test. The BoEs tests will be tougher than those of the ECB, and some analysts believe that Barclays will fail the BOEs tests due to the groups high leverage ratio.
Whats more, Barclays is facing a wave of litigation and could be required to set more cash aside to meet fines over the next few quarters. Some of the more pessimistic analysts believe that in the worst case scenario, Barclays is facing 7bn worth of fines and legal costs over the next few years.
Still, todays quarterly results from Barclays do show that the bank is making progress. Most importantly the banks financial cushion is improving.
Barclays reported tier one capital ratio now stands at 10.2%, up from 9.9% as reported at the end of June. Barclays capital position should increase to around 10.4% after the sale of its Spanish business. Further, during the third quarter Barclays key leverage ratioincreased to 3.5%.
Its up toyou
All in all, Barclays third-quarter results were impressive and have shown that the bank is making progress. Nevertheless, headwinds remain and Barclays is still facing the possibility of hefty fines and litigation, as well as leverage ratio issues.
However, before you make any trading decision I strongly advise that you take a closer look atBarclays.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
