Barclays Investment Bank More Profitable Even as Revenue Stalls

Barclays Investment Bank Pretax Profit Up 37%

Barclays Plc’s cuts to its investment bank are delivering higher profit even as the lender misses out on the rebound in trading equities and bonds helping its competitors.

Profit at the unit jumped 37 percent in the first quarter, while revenue rose just 2 percent from the year-earlier period to 2.15 billion pounds ($3.3 billion), Barclays said Wednesday. Equities revenue gained 4.7 percent to 619 million pounds, while revenue in fixed income, currencies, commodities and credit combined was flat.

Chief Executive Officer Antony Jenkins has scaled back the investment bank, the company’s least profitable unit, since taking over from Bob Diamond in 2012, and dealt with a series of regulatory missteps centered in the division from Libor to currency rigging. The retrenchment meant the unit missed out on the rebound in trading bonds and stocks that helped Deutsche Bank AG and Goldman Sachs Group Inc. in the quarter.

“The recalibration of the investment bank announced a year ago is taking its toll on Barclays’s market share,” Christopher Wheeler, an analyst at Atlantic Equities, said in a note. “It now posts the lowest FICC revenues of the eight banks who have reported to date,” he said, referring to fixed income, currencies and commodities.

A slump at the credit unit offset gains by the macro division, which comprises currencies, commodities, and rates. Revenue from macro and credit combined was unchanged at 898 million pounds.

Market Share

Of the eight global investment-banking players that have reported earnings this quarter, Barclays has the lowest market share in fixed income, according to data compiled by Bloomberg Intelligence. Equity income has been slow to rebound after the bank’s dark pool was accused of wrongdoing in the U.S.

In dollar terms, revenue is down 11 percent in fixed income and 18 percent in equities, according to Wheeler. Barclays doesn’t to break down revenue per product for the macro group.

The British bank’s equity performance trailed Citigroup Inc., JPMorgan Chase & Co. and Deutsche Bank, who all posted double-digit percentage surges. Germany’s largest lender said revenue from equities increased 31 percent in the first quarter, while New-York based Goldman Sachs and Morgan Stanley saw 46 percent and 33 percent increases respectively.

The investment bank is run by Tom King and trails other businesses in terms of return on equity. A former retail banker, Jenkins is focusing on more lucrative businesses such as the African division, credit cards and personal and corporate banking. New Chairman John McFarlane has vowed to reallocate capital and prioritize investment in the most profitable parts of the firm.

‘Modest Franchise’

“Barclays look to be settling for a more modest franchise and further market share losses look likely, with the big U.S. investment banks the most likely beneficiaries,” Wheeler said. “With the incoming chairman already making noises about investment banking profitability, it seems further retrenchment is possible.”

New York’s attorney general filed a lawsuit in June accusing Barclays’s electronic-trading division of lying to customers and masking the role of high-frequency traders in its dark pool. Barclays has said it did nothing wrong and is contesting the complaint.

The investigation severely dented the equities arm, according to Chirantan Barua, an analyst at Sanford C. Bernstein in London.

“The Barclays equities business is the old Lehman business, a late starter into equities but one that was built in the U.S. around best-in-class dark pools technology,” Barua said. “It will require a significant slog uphill for Barclays to be compared anywhere near to Goldman or Morgan Stanley.”

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