Barclays Pretax Profit Climbs 29% on Fixed-Income Revenue

Barclays Plc, the British bank fined for rigging benchmark interest rates, posted a 29 percent gain in third-quarter pretax profit and said it was the target of two more regulatory investigations.

Pretax profit, excluding provisions and accounting losses from revaluing the bank’s own debt, rose to 1.73 billion pounds ($2.8 billion), the London-based bank said in a statement today, meeting the 1.71 billion-pound median estimate of 13 analysts surveyed by Bloomberg. The shares fell after revenue from fixed income, commodities and currencies, known as FICC, missed analysts’ estimates.

The results are the first since Antony Jenkins replaced Robert Diamond as chief executive officer in August after Barclays was fined a record 290 million pounds for manipulating Libor. The bank, which is struggling to put an end to a series of regulatory missteps, said today it may be fined over its U.S. power trading operation and said its compliance with the U.S. Foreign Corrupt Practices Act is being probed. It also said it’s “cautious” about the outlook for its securities unit.

“The disappointment will be in the investment bank and the outlook,” Henry Dixon, a fund manager at Matterley in London, said in an interview with Bloomberg Television’s Mark Barton. “Their cautious comment about investment banking and yet another probe” will weigh on the shares, he said.

U.S. Probes

Barclays fell 4.7 percent to 227.5 pence in London trading after rising 3.5 percent yesterday. Before today, the bank’s shares had gained 47 percent in the second half, the second-best performance in the Bloomberg Europe Banks and Financial Services Index.

Barclays said the Federal Energy Regulatory Commission is probing its western U.S. power trading business between 2006 and 2008 and could issue a notice of penalties as soon as today. The regulator said in July that it was investigating JPMorgan Chase & Co. over potential manipulation that inflated prices for electricity.

Barclays also said the Department of Justice and the Securities and Exchange Commission are probing whether its relationships with third parties who help the bank win business comply with the Foreign Corrupt Practices Act.

That probe follows a U.K. inquiry by the Serious Fraud Office into fees the bank paid in 2008 to Qatar’s sovereign wealth fund as the lender sought money to avoid a government bailout. The bank said it’s investigating and is co-operating with U.S. authorities.

FICC Revenue

Barclays posted a net loss of 200 million pounds for the first nine months, compared with a profit of 2.7 billion pounds in the year-earlier period.

FICC revenue rose 10 percent to 1.58 billion pounds in the third quarter, missing the 1.87 billion-pound median estimate. The lender said trading in October “continues to be affected by the challenging economic environment and subdued market volumes,” and said it’s “cautious.”

“The investment bank is disappointing and that seems to be principally fixed income and currencies,” said Julian Chillingworth, who helps manage 17 billion pounds at London’s Rathbone Brothers Plc, including Barclays shares. “The market saw a good performance from Deutsche Bank yesterday, and therefore compare-and-contrast is disappointing.”

Rival Banks

Deutsche Bank AG yesterday said third-quarter profit climbed after a rally in bond and stock markets brought a surge in trading income. Its revenue from trading bonds and other products jumped an annual 67 percent in the third quarter to 2.5 billion euros ($3.25 billion).

Investment banks have benefited from a rebound in bond markets triggered by European Central Bank President Mario Draghi’s July pledge to defend the euro with “whatever it takes.” Goldman Sachs Group Inc.’s FICC revenue climbed 28 percent from a year earlier and was up 1 percent from the second quarter, according to figures released two weeks ago. JPMorgan’s fixed-income trading revenue excluding accounting adjustments rose 33 percent in the third quarter, while Citigroup Inc.’s increased 63 percent.

Barclays said it reduced its holdings of Italian, Spanish, Portuguese, Greek and Cypriot debt by 15 percent during the quarter. Credit-impairment charges fell 7 percent over the nine-month period.

Barclays paid a record fine after regulators found it tried to manipulate the London interbank offered rate. The bank is also being hobbled by compensation claims from Britons wrongly sold so-called payment protection insurance and derivatives.

The bank said the compensation-to-income ratio, a measure of how much is paid to its staff, fell to 39 percent from 46 percent for the first nine months. Jenkins said banker pay is likely to continue to fall.

Banker Pay

“We’ve been clear that we are acknowledging the sentiment of investors and broader society on compensation,” he said. “We are striking a balance between reducing the compensation ratio over time and protecting the franchise.”

The 2012 bonus pool has not yet been set, Barclays said.

Jenkins said more “appropriate action” will be taken on clawing back compensation, though he wouldn’t comment on whether that would apply to Diamond’s compensation. He also declined to comment on the investigations or say how many people have been fired or suspended following the bank’s Libor probe, although money has been clawed back from some employees.

Rich Ricci, who became the sole leader of the securities unit in June, this month combined part of the fixed-income and equities operations in his first reorganization since taking sole control of investment banking in June. Ricci helped build the investment bank as one of Diamond’s lieutenants.

“Our universal banking franchise remains strong and well-positioned,” Jenkins said in today’s statement. “We continue to have good momentum in our businesses despite the difficulties we have faced.”

The lender is cutting just under 10 percent of staff in its equities division in Europe, Middle East and Africa to reduce costs amid a slump in trading volumes, people with knowledge of the matter said on Oct. 19.

(Closes shares in paragraph five.)
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