London Markets: Barclays results spark renewed interest in unpopular banks

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A pedestrian wearing a face mask due to the COVID-19 pandemic walks past a branch of a Barclays bank in central London, England, on July 29, 2020.

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Shares of Barclays surged in London on Friday, as well-received results helped shine a spotlight on a sector that has been largely shunned by investors this year.

Barclays BARC, +6.34% BCS, +4.63% jumped 6%, poised for the best day since May 27, according to FactSet Research, after the U.K. bank’s third-quarter total income, net profit and pretax profit beat market expectations, even as it booked hefty provisions.

While some have criticized Barclays’ presence in investment banking, “the pandemic appears to be demonstrating the benefits of the more diversified approach championed by CEO Jes Staley, as this part of the group has been boosted by an increase in trading volumes at a time when consumer banking is under real pressure,” said Russ Mould, investment director at AJ Bell, in a note to clients.

And while the company is making more provisions for losses on loans linked to COVID-19, the trajectory level was looking more positive as the level of write-offs was below previous quarters.

Andrew Coombs and a team of analysts at Citigroup point to an Oct. 12 published note in which they took a contrarian view on U.K. banks, suggesting they were worth buying. And while that was met with plenty of skepticism, Barclays helps rationalize that view, said the team.

Coombs and the team rattled off the positives from Barclays’ results: recovering volumes, stabilizing net interest margins, the worst of impairments over, and significant capital generation.

“U.K. banks are the best performing stocks in FTSE 100 and SX7P SX7P, +2.71% today and up 20%+ in the past month,” said the Citi analysts.

Acting as a tide that lifted all boats, Barclays’ well-received results triggered gains across the banking sector. Shares of Lloyds Banking Group LLOY, +4.69% LYG, +3.14% climbed 5.3%, HSBC HSBC, +3.07% HSBA, +4.48% and Standard Chartered STAN, +4.12% rose 4% each.

Gains in the heavily weighted banking sector drove a 1.4% rise for the FTSE 100 index UKX, +1.24%, which was 1.3% higher.

Read: Barclays Shares Jump as Covid-19 Boosts Investment Bank Performance. That Could Be Good News for the Dividend.

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