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Barclays Investment Banking Profit Beats Analyst Estimates

Barclays First-Quarter Profit Declines 25% on Savings Program
A pedestrian passes a Barclays Plc bank branch, left, opposite the company's headquarters, in the Canary Wharf business district of London. Photographer: Chris Ratcliffe/Bloomberg

April 24 (Bloomberg) -- Barclays Plc, the first U.K. bank to report first-quarter results, posted a bigger-than-estimated gain in investment banking profit and said it’s on track to meet its target for cost cuts.

Pretax profit at the securities unit, which accounts for more than half of the bank’s earnings, rose 11 percent to 1.32 billion pounds ($2 billion), the London-based lender said in a statement today. That beat the 1.25 billion-pound median estimate of five analysts surveyed by Bloomberg. Chief Executive Officer Antony Jenkins told reporters today the lender made a “strong start” to its cost-reduction plan and is on target to cut 1.7 billion pounds of expenses by 2015.

The bank is stripping out layers of management and shrinking its money-losing operations in Europe to meet the objective. It’s also bolstering its investment-banking unit by focusing on the U.S., where rising income from arranging takeovers and stock offerings is helping to cushion a drop in Europe. Equities revenue jumped 19 percent in the quarter, the lender said today.

“The Barclays thesis can’t work unless the returns on the investment bank work, and we like the clear strategy,” said Chirantan Barua, an analyst at Bernstein Research in London who rates the stock an outperform. “While Europe has been a bug bear so far, it’s refreshing to see management being aggressive around downsizing the business.”

The stock declined 1.3 percent at 294.55 pence in London trading, for a market value of about 37.9 billion pounds. The shares have gained 12 percent this year, making Barclays the best performer among Britain’s five biggest banks.

‘Good Start’

“The good start to the year has continued into the second quarter across our businesses,” Barclays Chief Financial Officer Chris Lucas told reporters on a conference call today. The first quarter was “fantastic” for the investment bank, he later told analysts.

Income at the equities operation rose 19 percent to 706 million pounds while investment-banking revenue, which includes mergers advisory, advanced 8 percent to 558 million pounds on rising fees from equity-capital markets.

Revenue at the fixed income, currency and commodities business, the investment bank’s largest, fell 6 percent as gains linked to last year’s decision by the European Central Bank to offer firms unlimited three-year loans weren’t repeated.

Restructuring Costs

That was in line with a 7 percent decline at Goldman Sachs Group Inc. and a 5 percent decline at JPMorgan Chase & Co., Barua said in a report to clients. Credit Suisse Group AG, Switzerland’s second-largest bank, today posted a 3.1 percent increase in revenue from fixed-income sales and trading in the first quarter.

The lender booked a 514 million-pound charge for restructuring costs after closing branches in Europe and cutting investment banking positions in the region and in Asia.

Barclays’s pretax profit excluding losses on the valuation of the lender’s debt fell 25 percent to 1.79 billion pounds from 2.4 billion pounds in the year-earlier period. That missed the 2.1 billion-pound estimate of eight analysts surveyed by Bloomberg.

Barclays has reviewed 75 of its units to weed out those that pose a reputational risk or don’t make profits under the Transform program. It will cut 3,800 jobs as part of the overhaul, which will cost about 1 billion pounds in 2013.

‘In Transition’

“Barclays is a business in transition and these results reflect that,” said Simon Maughan, an analyst at Olivetree Securities Ltd. in London. “You’re likely to see another three or four quarters of Barclays numbers that miss expectations as they restructure the business.”

The European retail and business bank posted a 462 million-pound loss in the quarter, compared with a 72 million-pound loss in the year-earlier period. The unit logged 356 million pounds of restructuring charges while sales of mortgages and investment products declined. The securities unit booked 116 million pounds of charges linked to Jenkins’s so-called Transform plan.

Impairments fell 10 percent to 706 million pounds, beating analyst estimates, and are likely to remain stable at the consumer-banking unit, Barclays said. The lender had net income of 839 million pounds compared with a net loss of 598 million pounds in the year-earlier period.

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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