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Barclays Trading Gives Staley Momentum, But Misconduct Bites

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  • Staley repeats intention to return more capital to investors
  • Capital hit with surprise PPI charge on top of DOJ settlement
Barclays CEO Jes Staley discusses the bank’s earnings and performance, and talks about growth strategies.

Barclays Plc is finally showing some momentum for Jes Staley, whose beefed-up investment bank tracked Wall Street’s surge in equities revenue.

The British bank beat trading expectations for a second straight quarter, driven by a 28 percent jump in revenue from dealing stocks, matching the performance of U.S. rivals after a volatile start to the year boosted client activity. The results were blemished by another 2 billion pounds ($2.8 billion) of misconduct charges, a reminder of the firm’s involvement in past scandals that it has promised to stamp out.

“The investment bank performance was far better than expected,” said Joseph Dickerson, an analyst at Jefferies Group LLC. However, “we expect much weeping & gnashing of teeth around capital” after the charges, he said.

Staley has been under fire over persistently low returns at the investment bank, the centerpiece of his turnaround strategy. The trading results may strengthen the CEO’s hand against Edward Bramson, who has yet to outline his demands after emerging as one of Barclays’s largest shareholders in March. Executives have a meeting scheduled soon with Bramson soon and look forward to a “robust conversation” with the high-profile activist, Staley said in a Bloomberg Television interview.

The stock fell 2.2 percent to 208.3 pence at 8:13 a.m. in London, cutting this year’s advance to about 2 percent.

PPI Surprise

While the $2 billion U.S. penalty imposed to resolve a probe into the sale of pre-crisis toxic mortgage bonds was expected, Barclays surprised the market with an extra 400 million pound charge for the payment-protection insurance scandal, adding to more than 9 billion pounds it has already set aside to compensate customers.

When misconduct charges are included, the bank swung to a 236-million-pound loss in the quarter and its common equity Tier 1 ratio, a key measure of financial strength, fell to 12.7 percent from 13.3 percent.

Buyback Pledge

The results “underline” the success of the current strategy and the investment bank “clearly gained market share,” Staley, who is in his third year as chief executive officer, said in the interview. He reiterated a promise to return an increasing amount of cash to shareholders through dividends and buybacks.

When converted to dollars, the CEO said revenue from trading rose 21 percent, more than double the average of the U.S. investment banks and “quite a bit more than what the European banks saw.” He credited investment in technology, and said the bank wasn’t taking on more risk to boost returns.

Trading Revenue

Overall trading revenue at the investment bank rose 8 percent to 1.46 billion pounds in the first three months of the year, compared with the 2 percent average drop forecast by three analysts surveyed by Bloomberg News. The good performance in equities -- which was similar to the 32 percent surge seen on Wall Street -- was offset by a 2 percent fall in fixed-income and currency trading, which was exacerbated by a decline in the value of the dollar against the pound.

Market Momentum

Barclays's traders matched U.S. rivals this quarter while Deutsche Bank fell short

Sources: Company filings

Note: Data shows year-on-year percentage change in local currency income; Wall Street is the average of the 5 largest U.S. trading banks

By contrast, Deutsche Bank AG said today that trading revenue fell 17 percent and it was preparing to scale back large large parts of its U.S. operations, effectively abandoning its ambitions to be a global investment bank.

Barclays’s overall pretax profit, excluding litigation costs, rose 1 percent to 1.7 billion pounds in the first three months of the year, beating the average 1.6-billion-pound average estimate of 12 analysts compiled by the bank. Net operating income fell 4 percent to 5.1 billion pounds.

In 2017, the investment bank consistently lost ground to rivals and Staley’s future was in doubt after he was caught trying to unmask a whistle-blower multiple times. Earlier this month, regulators let the CEO off with a fine over that scandal, stopping short of more serious charges that could have seen him lose his job.

— With assistance by Donal Griffin

(Updates with share price and comments from CEO and analyst, starting in third paragraph.)
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