London - Barclays said revenue at the investment bank fell less than expected in turbulent markets and the firm avoided any new misconduct charges, helping to cushion a larger loss from selling unwanted assets.
Pretax profit fell 25 percent to 793 million pounds ($1.15 billion) from 1.06 billion pounds a year ago, the London-based bank said in a filing Wednesday. Revenue dropped 13 percent to 4.6 billion pounds, topping the 4.48 billion-pound average estimate of nine analysts provided by the company.
CEO Jes Staley, who has resisted calls to shrink or spin off the investment bank, said he was encouraged by “significant” market share gains as the unit posted smaller revenue declines than US rivals. Still, Staley said he wasn’t satisfied with the business’s returns and will deepen cost cuts, including reducing pay at the securities unit to reflect lower revenue.
“The market is likely to take comfort from the income beat, given that this has been a historical source of disappointment for the group and considering concerns around weakness in investment-banking performance coming into the results,” said Gary Greenwood, an analyst at Shore Capital with a buy rating on Barclays shares.
The shares fell 0.4 percent to 173.25 pence at 12:00 p.m. in London, reversing an earlier climb of as much as 4.6 percent. The stock has fallen 21 percent this year, extending a two-year slump that’s left the bank trading at about half the book value of its assets. Chairman John McFarlane, 68, pledged in July to double the share price over the next three to four years.
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Trading drop
Revenue from the firm’s markets business dropped 4 percent, as a 46 percent jump in credit trading offset declines in equity- and macro-trading units. Investment banking fees fell 12 percent, and the firm said income in April has fallen from the first quarter.
Barclays said underlying pretax profit at the corporate and investment bank was 701 million pounds, a 31 percent drop, excluding some one-time charges for legal and regulatory matters. Barclays had warned the first quarter would feature lower revenue from the investment bank after a weak March.
“Good performance in a challenging environment,” Raul Sinha, a JPMorgan Chase & Co analyst, wrote in a note to clients. Profit and revenue were above his estimates, he said.
The results may bolster Staley’s chances of convincing investors of the long-term benefits of maintaining an investment bank, even after it generated lower returns than Barclays’s consumer and credit-card businesses. The CEO has opted to cut the dividend for two years and sell down the bank’s stake in its Africa business to boost capital.
‘Uncharacteristically clean’
The bank had no notable provisions for investigations or customer redress, after almost 1 billion pounds of such charges in the year-earlier quarter and the bank said its cost-cutting program remains on track.
“The results appear uncharacteristically clean,” said Ian Gordon an analyst at Investec with a buy rating on the stock. “There are no separately disclosed below the line conduct charges at all.”
Staley has asked investors to endure short-term pain so he can boost returns by exiting some operations. The lender cut RWAs at the non-core unit by 3 billion pounds to 51 billion pounds in the quarter and said today it’s in exclusive negotiations with AnaCap Financial Partners for the sale of its French retail-banking operations, the last remnant of its European branch-based network.
Pretax profit from the international consumer, cards and payments units surged 50 percent to 326 million pounds as revenue climbed 24 percent. Barclaycard UK posted a 3 percent drop in income to 491 million pounds, which the bank blamed on new European rules.
‘Potential power’
“The performance of the core today shows the potential power of the group once it is freed from the drag of non-core,” Staley said in the statement. “As these deals complete, we are reducing risk-weighted assets and, crucially, eliminating costs, which have a direct impact on our profitability today and mask the true performance of our strong core business.”
These are Barclays’s first results after under a new structure formed to comply with British ringfencing rules requiring the separation of consumer and investment-banking arms by 2019. The ringfenced Barclays UK unit has about 70 billion pounds of risk-weighted assets, while Barclays Corporate and International has 195 billion pounds, including the investment bank, most of wealth management and the US and international cards businesses.
The ringfenced UK bank made a return on tangible equity of 20.5 percent, lower than the same period last year, while the corporate and international unit had a 9.5 percent return. That translated into a 3.8 percent ROE once losses at the non-core unit were included.
The bank is selling down its 62 percent stake in Barclays Africa Group to raise capital after deciding it was no longer a strategic priority. Staley is preparing to sell an initial 10 percent stake in its African unit to several large investors, while keeping the option to divest its entire holding, people familiar with the matter have said. Former Barclays CEO Bob Diamond said Tuesday he’s working with investors including US private-equity giant Carlyle Group on a potential bid.
BLOOMBERG