Barclays doubles underlying profits but investment bank disappoints

Jes Staley, Barclays chief executive, has been forced to defend the disappointing performance of parts of its investment bank, while deflecting awkward questions about his recent treatment of a whistleblower.

Mr Staley, who is being investigated by British and American regulators for trying to discover the identity of a whistleblower, sought to focus on the bank’s doubling of underlying profits in the first quarter, excluding a big hit for selling its African unit.

The bank reported attributable profits of £190m for the three months to March, down from £433m in the same period of last year. But this included the £658m post-tax goodwill writedown on the value of its African business.  

Profits after tax from continuing operations more than doubled to £1.2bn, but analysts said the bank missed expectations due to weaker than expected fixed income trading. The results add to the impression that European investment banks are falling behind their US rivals after Deutsche Bank unveiled a disappointing showing this week.

Barclays shares were trading down 4.5 per cent at 214p after the results on Friday morning.

Its corporate and investment bank had a mixed performance. While revenues rose 18 per cent from “banking” activities, such as debt and equity underwriting and advisory, it suffered double-digit declines in fixed income and equities trading — missing out on the big increase in markets revenues enjoyed by US banks.  

Mr Staley said Barclays suffered from a “tough comparison” with its strong performance in the first quarter of 2016, adding: “This is not something that is particularly troublesome. But obviously we’d like to do better. The one area where we would like to do better is US rates trading.”

Andrew Coombs, analyst at Citigroup, said: “We view these as slightly disappointing results after adjusting for the one-off gains. The weak investment bank revenues are notably below Citi and consensus expectations.”

Pre-tax profits were flat at the bank’s UK division, while they rose by a third at its international arm, which includes its investment bank. The biggest improvement, however, was in its non-core division, which it plans to wind down by June and where losses fell 70 per cent to £241m.  

Overall, the bank’s revenues rose 16 per cent to £5.8bn, while operating costs shrank 5 per cent to £3.6bn. Mr Staley said the results vindicated his decision to double down on Barclays’ investment bank while selling its large African operation, slashing its dividend and accelerating the rundown of its non-core unit.

The one area where we would like to do better is US rates trading

Barclays said the goodwill impairment on its 50 per cent stake in Barclays Africa Group Limited largely reflected the 17 per cent fall in the value of its Johannesburg-listed offshoot. South African markets were hit by last month’s abrupt firing of Pravin Gordhan, the country’s respected finance minister.  

The bank blamed a 19 per cent rise in loan impairment charges on “a change in portfolio mix in US cards and business growth”.  

Its common equity tier one ratio, a key benchmark of financial strength, inched up to 12.5 per cent during the quarter, within its target range, despite the cost of redeeming $1.4bn of US preference shares.  

Barclays said the UK Serious Fraud Office “has stated that it intends to make a decision shortly” on its investigation into the bank’s emergency fundraising from Qatari and Abu Dhabi investors in 2008.  

Mr Staley has faced heavy criticism for ordering the bank’s security team to try to identify a whistleblower who had made allegations about a recently-recruited senior employee. The CEO had previously been told by compliance staff that this was not appropriate.  

He said on Friday that he had not tendered his resignation, adding: “I made a mistake. I was trying to protect a vulnerable colleague. But I should have let the organisation handle it.”

Some investors have told the Financial Times they are sceptical Mr Staley can survive the scrutiny he faces from regulators, which have the power to ban him from working in finance for breaking whistleblowing rules.  

The Barclays boss has already been formally reprimanded by his board, which also promised to dock his bonus by an amount that is to be determined once regulators release their findings.