Barclays Profit Rises; Sets Aside More for Currency Probe

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Barclays Investment Bank Pretax Profit Up 37%

Barclays Plc set aside an additional 800 million-pound ($1.2 billion) provision toward settling allegations it rigged currency benchmarks as it post first-quarter profit that matched analyst estimates.

Pretax profit, including restructuring costs, rose to 1.8 billion pounds from 1.7 billion pounds from a year earlier, Barclays said in a statement on Wednesday. That matched the average estimate of six analysts compiled by Bloomberg.

The provision brings to 2.1 billion pounds the total the bank has set aside to cover a settlement into allegations its traders manipulated key benchmarks in the foreign-exchange market. Such legal woes have complicated Chief Executive Officer Antony Jenkins’s efforts to revive earnings. The lender dropped out of a settlement in November, when six banks paid about $4.3 billion in fines.

“It makes you wonder why there have been two top ups to the provision but without any external news,” said Mike Trippitt an analyst at Numis Securities Ltd. in London with a buy rating on the shares. “It creates a slightly uncomfortable feeling. I’d like to see a conclusion to the currency probe.”

‘No Regrets’

Barclays, Britain’s second-biggest lender by assets, fell as much as 2.9 percent, the biggest drop in a month, and traded

1.8 percent lower at 256.60 pence at 2:26 p.m. in London. The shares have risen about 5 percent this year.

The latest currency provision was double the forecast of Chirantan Barua, an analyst at Sanford C. Bernstein in London.

Still, Finance Director Tushar Morzaria told reporters on a call on Wednesday he has “absolutely no regrets” about not joining the group settlement at the end of last year.

“We firmly believe that was the right choice for the company” and “we are working as hard as we can to expeditiously resolve this matter,” he said, without elaborating. The company is in “fluid, real-time dialogues” with regulators over reaching a settlement, he said.

Barclays also set aside 150 million pounds for wrongly sold payment protection insurance redress in the first quarter, taking its PPI compensation bill to 5.4 billion pounds.

Including provisions, pretax profit fell to 1.3 billion pounds in the first quarter from 1.8 billion pounds a year ago. The firm’s return on equity, a measure of profitability that takes into account how much capital the business uses, was 7.6 percent, up from 6.5 percent a year earlier. Net income was 465 million pounds in the period, a 52 percent decline.

‘Major Problem’

“We have to remember this bank took 1 billion pounds of litigation and misconduct charges and still grew its capital ratio,” said Joe Dickerson, an analyst at Jefferies International Ltd. in London, who has a buy rating on the stock. “The major problem is drag from then non-core unit -- it’s imperative that management and the board get behind a quicker non-core rundown.”

As part of his revamp, Jenkins set up a bad bank to dispose of 115 billion pounds of assets including complex derivatives from the lender’s fixed-income, currencies and commodities unit and the European consumer arm.

Barclays cut risk-weighted assets at the non-core business by 10 billion pounds to 65 billion pounds, driven in part by the sale of its Spanish business. The common equity tier 1 ratio, a measure of its high-quality capital, increased to 10.6 percent from 10.3 percent at the end of 2014.

Rising costs for fines have added to pressure on Jenkins, 53, to deepen cuts at the investment bank after pledging to eliminate some 7,000 jobs. New Chairman John McFarlane has vowed to reallocate capital and prioritize investment in the most profitable parts of the firm to bolster earnings.

Investment Bank

The securities unit, run by Tom King, had a pretax profit of 675 million pounds in the first quarter, up from 491 million pounds. Revenue rose 2 percent to 2.15 billion pounds, with fees from arranging mergers and securities sales up 7 percent. The division reported a quarterly return on equity of 9.1 percent compared with 2.7 percent in 2014. However, it’s still the least profitable part of the bank.

“As a management team, we’re not slavishly focused growing our top line, we’re much more focused on increasing our profits and our returns” at the investment bank, Morzaria said.

Barclays’s investment bank is trailing global competitors benefiting from increasing volatility and rising equity markets. In the U.S., Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. posted revenue gains of more than 20 percent in the first quarter. Deutsche Bank AG said on Monday its investment bank boosted revenue 15 percent.

Under his cost-cutting plan, Jenkins will eliminate some 19,000 jobs across the firm by 2016 and focus on the U.S. and the U.K. Operating expenses fell 7 percent to 4.1 billion pounds in the quarter, helped by lower costs for the Transform program. The adjusted cost-income ratio, a measure of profitability, was at 64 percent, down from 67 percent.

“It’s a work in progress,” Trippitt said. “Broadly, I’d say they did slightly better than I was going for, with the key areas of the investment bank and non-core deleveraging going in the right direction.”

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