The Motley Fool

Have Barclays plc and Standard Chartered plc turned a corner after Q3 results?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

If you only looked at the share price movement triggered by recent third-quarter numbers from Standard Chartered (LSE: STAN) and Barclays (LSE: BARC), you’d probably say that Barclays was the clear winner.

Its shares have risen by 4% since its Q3 figures were released last Thursday. By contrast, Standard Chartered’s share price has fallen by almost 5% so far today, following the release of its Q3 figures.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Personally, I’m not sure these short-term movements tell the whole story. Having looked through each bank’s update, my view is that they’re both making progress.

This is what I’m looking for

As a shareholder in both banks, I’m keen to see a return to earnings and dividend growth. But I also want to see evidence that management is fixing the problems that caused this mess in the first place.

My view is that once the right foundations have been laid, profits will naturally recover. I’m confident that big banks remain viable businesses, if they’re run correctly. Happily, management at both banks now seem to share this view.

Lower costs and stronger loans

Standard Chartered’s loan impairments fell by 5% to $596m during the third quarter. They’ve fallen by 41% to $1,692m so far in 2016. Reduced losses from bad debts should gradually help to lift profits.

So too should lower operating costs. Standard Chartered’s operating expenses and regulatory costs were $6,921m, during the first nine months of this year. That’s 8.2% less than during the same period last year.

A final attraction is that Standard Chartered’s balance sheet remains strong, with a CET1 ratio of 13%. That’s at the upper end of the bank’s target range, and well above regulatory requirements.

I’m confident that improvements such as these will eventually lead to higher profits. However, that doesn’t seem likely in 2016. Standard Chartered’s underlying pre-tax profit for the nine months to 30 September was $1,452m, 13.8% lower than during the same period last year.

Is it better at Barclays?

Recent figures from Barclays were in some ways quite similar. The group’s pre-tax profit for the first nine months of this year was £2,900m, 10% lower than for the same period last year. Although operating costs fell, this wasn’t enough to offset a 6% drop in income, and a rise in bad debt charges.

One small compensation is that unlike Standard Chartered, Barclays has maintained a small dividend payment. The bank will pay a third-quarter dividend of 1p per share, a 66% reduction from the 3p per share paid last year.

Barclays still faces some challenges. Its CET1 ratio of 11.6% is well below peers such as Standard Chartered. The sale of a majority stake in Barclays Africa is also taking time, with just 12.2% sold so far.

Is either bank a buy?

Both Barclays and Standard Chartered trade at a discount of about 30% to their net tangible asset value per share. But they also trade on fairly high P/E ratios. What this shows is that both banks are currently generating very little profit from their assets.

If this can be fixed, then I believe that shares in both banks could rise significantly from current levels. On that basis, I see both as a long-term recovery buy.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Roland Head owns shares of Barclays and Standard Chartered. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.