Barclays Falls as Investment Banking Misses Estimates

John Varley, chief executive officer of Barclays
A file photo of John Varley, chief executive officer of Barclays Plc, as he arrives at 10 Downing Street in London. Photographer: Chris Ratcliffe/Bloomberg

Barclays Plc, the U.K.’s third-largest bank by assets, fell in London trading after first-quarter investment banking revenue dropped more than estimated.

Revenue at the Barclays Capital unit slumped 26 percent to 3.8 billion pounds ($5.8 billion) for the three months to March 31, missing the 4.9 billion-pound estimate of analyst Mark Phin at Keefe, Bruyette & Woods Ltd. The shares declined the most in 12 weeks.

“We are skeptical about continued growth at Barclays Capital,” wrote Bruce Packard, a London-based analyst at Seymour Pierce, with a “sell” recommendation on the stock. Fixed-income bankers “have worked hard to perpetuate the scientific nonsense of everlasting, compounding growth.”

While revenue declined at Barclays Capital, the securities unit led by Robert Diamond, investment banking revenue rose 41 percent at Deutsche Bank AG in the first quarter and was 1 percent lower at JPMorgan Chase & Co. Barclays Capital hired more than 750 people in Europe and Asia last year, adding equities and mergers and acquisitions advisers, after buying the U.S. unit of Lehman Brothers Holdings Inc. in 2008.

Net income for the three months to March 31 rose to 1.07 billion pounds, or 8.7 pence a share, from 826 million pounds, or 6.8 pence in the same period of 2009, the London-based company said in a statement.

“This is a disappointing statement,” wrote Jonathan Pierce, an analyst at Credit Suisse Group AG, in a note to investors today. “Consensus forecasts for 2010 are safe, but 2011 is more vulnerable.”

‘New Businesses’

The bank fell 6.4 percent to 338.25 pence in London trading, the worst performer in the five member FTSE 350 Index of U.K. banks. Barclays has gained 23 percent in 2010, compared with a 6.6 percent gain for the index.

“In the next nine months, we would expect to see new businesses coming on stream,” said Barclays Capital President Jerry Del Missier in a telephone interview, who pointed to cash equities, credit business and underwriting. Revenue at Barclays Capital was lower because of a 38 percent decline in fixed income, commodities and currencies, Credit Suisse’s Pierce said.

“Everyone is focusing on the revenue figure, it’s a disappointment,” Oliver Gilvarry, the head of research at Dolmen Securities in Dublin, with a “buy” recommendation said by phone. “The market got ahead of itself on what it was expecting on the revenue side.”

Impairments Fall

The bank is also proposing to retain more of its earnings and distribute lower dividends to shareholders because of “regulatory uncertainty” over capital, Chairman Marcus Agius told the bank’s annual meeting of investors in London today. The bank will pay a 1 penny dividend for the first quarter.

Barclays said impairments fell 35 percent to 1.5 billion pounds compared with the same period a year earlier.

Pretax profit at Barclays Capital outstripped the performance of every other division, rising 62 percent to 1.47 billion pounds and contributing about 80 percent of group profit. That resulted from a 75 percent fall in impairments at Barclays Capital and a 66 percent rise in revenue from debt and equity underwriting.

The second-biggest contributor to profit was the global retail banking unit, where pretax profit fell 6 percent to 403 million pounds.

“The investment banking division has again driven performance,” said Keith Bowman, a London-based equity analyst at Hargreaves Lansdown. “Today’s results will again reinforce some people’s concerns that they are too dependent on that unit.”

Credit Card Loss

Barclays is accruing 38 percent to 39 percent of revenue in remuneration for employees in its investment bank, said Finance Director Chris Lucas in a conference call with journalists today. A decision on bonuses won’t be taken until the end of the year, he added.

Lloyds Banking Group Plc, the 41 percent U.K. government-owned bank, this week said it returned to profit as bad loan provisions declined.

Barclays Corporate posted a 75 million-pound loss and the Barclaycard credit card unit’s profit declined 34 percent to 118 million pounds. Profit rose 20 percent to 238 million pounds at the U.K. consumer banking unit.

Barclays has “direct exposure” to government bonds in Greece of less than 200 million pounds, said Chief Risk Officer Robert Le Blanc in a conference call with analysts.

Separately, 6.3 percent of shareholders today voted against the bank’s remuneration report which included a proposed performance-based share plan running from 2010 to 2012 that would pay Diamond a maximum of 6 million pounds. That compared with 5 percent voting against the pay report last April.

“Shareholders have protested for many years about the level of pay,” said investor Robert Muriel at the shareholder meeting. “I’m concerned about the way these things go on.”


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