Barclays Profit Beats Estimates as Investment Bank Rebounds

Barclays Plc (BARC), Britain’s second- biggest bank by assets, posted first-quarter profit that beat analyst estimates as revenue at its investment banking unit rebounded from the fourth quarter.

Pretax profit excluding losses on the valuation of the lender’s debt rose 22 percent to 2.45 billion pounds ($3.96 billion) from 2 billion pounds in the year-earlier period, the bank said in a statement today. That beat the 1.96 billion-pound median estimate of eight analysts surveyed by Bloomberg.

Revenue at the investment banking unit, which generates about half of London-based Barclays’s pretax profit, jumped 91 percent from the fourth quarter as income from trading fixed- income, currencies and commodities surged. Impairments for bad loans fell to 778 million pounds, surpassing analyst estimates.

“It was not a robust first quarter,” Chief Executive Officer Robert Diamond, 60, told reporters on a conference call. “It was only robust compared with the third or fourth. I think most people would say April was a bit sluggish compared to the first three months.”

The stock climbed 0.7 percent in London trading today to 212.45 pence. Barclays has declined almost 30 percent in the past year, compared with a 21 percent drop in the five-member FTSE 350 Banks Index.

“We expected a relatively cautious outlook statement,” Ian Gordon, an analyst at Investec Securities in London, who rates Barclays a buy, wrote in a note to clients today. “Anecdotal evidence of softening elsewhere was already clear.”

PPI Charge

The bank set aside 300 million pounds in the quarter to compensate clients it improperly sold payment protection insurance after a 1 billion-pound charge last year. Customers who bought the insurance rarely compared prices and terms or switched providers, and usually weren’t aware they could have bought it elsewhere, according to the Competition Commission, a U.K. antitrust agency.

The lender also recorded a 2.62 billion-pound loss as the value of its own debt increased. Including PPI claims and the debt-valuation adjustment, the lender posted a pretax loss of 475 million pounds, compared with a 1.66 billion-pound profit in the year-earlier period. It didn’t disclose net income.

Income at the investment bank, formerly known as Barclays Capital, rose 3 percent from the year-earlier period to 3.46 billion pounds, helped by a 9 percent increase in revenue from fixed-income, currencies and commodities trading. FICC revenue was up 147 percent from the fourth quarter.

‘Rebounded Strongly’

Pretax profit at the unit fell to 1.27 billion pounds from 1.33 billion pounds in the year-earlier period as expenses rose and it took an impairment charge.

“FICC sales and trading performance rebounded strongly,” Mike Trippitt, an analyst at Oriel Securities Ltd. in London, wrote in a report to clients today. Impairments were better than his estimate of 995 million pounds, he said.

Deutsche Bank AG, Germany’s biggest lender, said today pretax profit at its investment banking unit fell 25 percent to 1.72 billion euros ($2.3 billion) from the year-earlier period. The unit had a 422 million-euro loss in the fourth quarter.

Among the U.S. banks, Goldman Sachs Group Inc. this month reported a 20 percent decline in fixed-income trading revenue to $3.46 billion. JPMorgan Group Inc. (JPM)’s revenue from that division dropped 11 percent to $4.66 billion and Citigroup Inc., the third-biggest by assets, reported a 4 percent drop in fixed- income trading to $3.65 billion.

Corporate Bank

Profit at Barclays’s corporate banking division jumped to 219 million pounds in the quarter from 21 million pounds in the year-earlier period as impairments in Spain declined.

The lender cut its so-called sovereign debt exposure to Spain, Italy, Portugal, Ireland and Greece by 16 percent to 6 billion pounds in the first quarter. Barclays cut its Spanish holdings by 15 percent to 2.2 billion pounds and its Italian holdings by 14 percent to 3 billion pounds.

The debt, which was “held for the purpose of interest rate hedging and liquidity,” has been replaced by “interest rate swaps with alternative counterparties,” Barclays said in the statement.

Tomorrow, investors vote on Diamond’s 12 million-pound compensation package as part of a wider vote on executive pay at the company’s annual general meeting in London. Diamond got as much as 6.3 million pounds in salary, bonuses and stock awards for 2011 as well as a 5.75 million-pound contribution toward his personal tax bill.

He offered to forgo 11 percent of his total compensation for 2011 if the bank doesn’t hit its profitability targets after investors including Standard Life Plc (SL/) criticized his pay.

Barclays said in February it may fail to hit its 13 percent target for ROE by 2013 after it fell to 6.6 percent in 2011. ROE rose to 12 percent in the first quarter, excluding the effect of the PPI charge and debt-valuation adjustments, Barclays said.

Diamond today declined to answer questions on the vote before the meeting. “Today is about the results,” he said.

To contact the reporter on this story: Howard Mustoe in London at hmustoe@bloomberg.net.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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