Barclays Plc, the U.K.’s second-largest bank by assets, said a drop in stock and bond trading in July and August sparked a “significant” fall in revenue at its largest unit as it prepares to raise money from investors.
The decline in fixed income, currencies and commodities at the investment bank helped shave off 500 million pounds ($797 million) in the group’s adjusted income for the two months from a year earlier, the London-based bank said in a statement today. The revenue measure, which excludes gains and losses on the bank’s own debt and customer compensation, is 5 percent lower for the year’s first eight months, it said.
Barclays is seeking to raise 5.8 billion pounds this month to bolster capital, in the biggest rights offering by a U.K. bank since Lloyds Banking Group Plc’s 13.5 billion-pound sale in 2009. Chief Executive Officer Antony Jenkins is also shrinking assets by about 80 billion pounds to 1.5 trillion pounds and selling 2 billion pounds of loss-absorbing securities after regulators identified a 12.8 billion-pound capital hole at the bank under stricter Basel III rules.
“Barclays continues to remain cautious about the environment in which it operates and its focus remains on costs, capital, leverage and returns in order to drive sustainable performance improvements,” the company said in the statement.
The shares rose 1.3 percent to 305.4 pence in London.
Barclays, which gains more than 40 percent of revenue from the investment bank led by Eric Bommensath and Tom King, follows U.S. banks in facing a squeeze on income in the third quarter. The bank’s total adjusted income was 15.1 billion pounds in the first half.
JPMorgan Chase & Co., the biggest U.S. bank, expects third-quarter revenue from stock and bond trading may decline as much as 5 percent from a year earlier, when it produced $4.77 billion. Chief Financial Officer Marianne Lake said Sept. 9 at an investor conference in New York that the company doesn’t expect to match trading revenue of September 2012, which was “particularly strong.”
Morgan Stanley CFO Ruth Porat said the next day at the same conference that volumes in investment banking and trading had been “a bit lower” than the year-earlier period across the industry.
“Given the history of volatility in FICC, this is relatively smooth,” said Simon Maughan, head of research at Olivetree Financial Group in London, referring to Barclays. “It’s largely in keeping with what JPMorgan has said.”
Barclays’s profit at the investment-banking unit in the first half rose to 2.39 billion pounds from 2.24 billion pounds, missing analysts’ estimate of 2.48 billion pounds. Income from trading fixed income, commodities and currencies fell 13 percent to 3.57 billion pounds.
Barclays said it’s on track to meet an 18.5 billion-pound cost goal, excluding restructuring expenses, for 2013.
Investors in the rights issue will be able to buy one new share for every four they already own for 185 pence, 40 percent less than the closing price the day before the offer was announced in July.
Credit Suisse Group AG, Deutsche Bank AG, Bank of America Corp. and Citigroup Inc. are underwriting the stock sale. Barclays will pay about 99 million pounds in fees to the banks arranging the stock offering.
The bank also said it is contesting the findings of the Financial Conduct Authority, which is trying to impose a 50 million-pound fine following a 322 million-pound payment the lender made to Qatar Holding LLC during its 2008 fundraising to avoid a bailout. The bank made two agreements with Qatar in June and October 2008. The Department of Justice and Securities and Exchanges Commission are also investigating, the lender said.
“The FCA considers that Barclays and Barclays Bank acted recklessly,” Barclays said in the prospectus.