Barclays(LSE: BARC) shares have fallen by as much as 5% in early trading today after the company reported a mixed set of third quarter results.
The bank reported a 10% fall in adjusted pre-tax profit to 1.4bn, down from 1.6bn as reported a year ago. Barclays reported an adjusted pre-tax profit of 1.9bn for the second quarter of 2015.
Statutory profit before tax fell by around a third year-on-year to 861m, compared to 1.2bn reported for the same period last year.
It wasnt all badnews, however. Over the nine months to the end of September, adjusted profit before tax increased 4% year-on-year to 5.2bn. Furthermore, adjusted group operating expenses fell 5% to 12.5bn as a result of the groupsstrategic cost programmes.
Hidden bad news
Unfortunately, away from the headline figures there were plenty of hidden nasties within Barclays results release. For example, Barclays announced that it was setting aside 270mrelating to the settlement of litigation regarding US mortgages. A further 290m is being set aside to compensate UK customers following an internal review of rates given on foreign exchange transactions.
Whats more, the bank laid out, for the first time, the expected costs to implement the ring-fencing of its UK retail bank. Managementexpectsthe ring-fencing costs to total around 1bn, 100m of which will be spent this year. An additional 400m will be spent putting the ring-fence in place during 2016, andup to500m will be spent separating retail and investment bank operations after 2016.
As a result of these added costs, Barclays has been forced to raise itsguidance for core costs and lower the groups return on equity target by 1%, from 12% to 11%.
Haunted by legacy issues
Barclays is going through a period of transition, and todays results highlight how much work there is still to be done. The bank is being haunted by legacy issues and rising regulatory costs. These costs are offsetting almost all of the good news from the banks core business.
Indeed, Barclays core business reported a 7% rise in pre-tax profit for the third quarter. Return on equity for the core business averaged 10.5% during the three months to the end of September. Broken down,Barclaycard, which is growing fast in the US, saw profits leap 41% year-on-year to508m while personal and corporate banking improved by 9% to 855m. Barclays African banking division pre-tax profit fell by 8% to 251m.
However, after factoring in 1.3bn in charges for UK customer redress, 1.1bn forongoing investigations and litigation, and a final 320m loss on the sale of non-core assets, all of which were booked during the third quarter, Barclays core figures lose their shine.
The bottom line
Overall, Barclaysthird-quarter results were a mixed bag. On one hand, the banks core business is charging ahead but on the other, rising costs are holding back group growth.
It’s clear that Barclays’ turnaround is still far from complete and you’ve run out of patience with the bank, The Motley Fool’s top analysts have recentlyidentified a companythat they consider to be one of the market’s “top small caps”.
Our analysts reckon that the shares of this company could have a potential upside of 45%!
All is revealed inour new free reportentitled“Is This Stock Tomorrow’s Big Winner?”The company in question has a strong cash balance, provenadvantageand is supported by some of the biggest players in its industry.
If you’d like to find out more, download thefree report today— but hurry, it’s only available for a limited time.