Stephen Morris London
BARCLAYS’ Antony Jenkins, in a push to revive earnings, has set his eyes on the lender’s worst-performing unit: its investment bank.
The division would probably report today that its fourth-quarter loss deepened from a year ago, according to analysts at Deutsche Bank.
That is a drag on the bank as a whole, as adjusted pretax profit, including charges tied to the transform cost-cutting programme, is seen rising to £5.3 billion (R95.2bn) from £5.2bn, according to the average estimate of 19 analysts compiled by the company.
Two-and-a-half years into his tenure, Jenkins, a consumer banker by training, has pledged to focus on the most profitable businesses while seeking ways to dismantle the fixed income-dominated investment bank created by his predecessor, Robert Diamond.
With the division lagging profit targets, Jenkins may have to deepen cuts under a 2014 plan to eliminate a quarter of jobs.
“The market will react to the investment bank; a poor fourth quarter won’t do the stock any favours,” said John-Paul Crutchley, an analyst for UBS Group in London, who has a buy rating on the shares.
“I’d be surprised if they didn’t come back with a resizing of the investment bank again this year.”
Barclays spokesman Will Bowen declined to comment ahead of results.
The stock rose 2.3 percent to £2.63 at 10.51am in London yesterday, bringing gains this year to about 8 percent.
The investment bank earned almost half of the bank’s pretax profit in 2011, the year before Diamond’s departure, with the former Wall Street banker the chief architect of an expansion that saw headcount at the division more than triple.
While Barclays weathered the financial crisis without government aid, returns at the trading unit have since been hurt by Europe’s fiscal crisis, tighter capital rules and rising provisions.
Barclays might face as much as £5.4bn of additional costs in the next two years for past misconduct, including for selling unnecessary insurance to customers as well as manipulation of currency markets, Morgan Stanley said.
In the fourth quarter, the bank might take impairment charges of £637 million, according to analyst estimates compiled by the company.
Earnings at the investment bank have been lagging other units, with pretax profit slumping 39 percent in the third quarter after a 46 percent drop in the first half. That compares with the personal and corporate unit, which includes mortgage lending, reporting a 11 percent increase in third-quarter profit.
The investment bank’s return on equity, a measure of profitability, was 4.9 percent in the nine months to September, the latest available data show, lagging the core group’s 10.5 percent, excluding the bad bank housing unwanted assets. That is less than half Jenkins’ target of achieving a return of 12 percent by 2016.
The unit had the lowest market share in fixed income, currencies and commodities trading revenue in the third quarter among the world’s nine largest investment banks after UBS Group and Morgan Stanley, according to data compiled by Bloomberg Intelligence. – Bloomberg