‘Disappointing’ Q1 results knock Barclays shares
BARCLAYS shares fell sharply on Friday as investors focused on a poor performance at its markets business, a key part of its growth strategy, that missed out on a bond trading boom enjoyed by Wall Street rivals in the first three months of this year.
The British bank is seeking to press ahead with restructuring plans that have seen it shift towards a transatlantic US-UK focus and an emphasis on investment banking under its US chief executive, Jes Staley.
In its trading division, income from its markets business fell 4 percent to £1.35 billion (R23.29bn), as macro income fell 14 percent, because of a weaker performance by its US rates business and the impact of exiting energy-related commodities.
Equities trading income fell 10 percent, driven by lower revenue from US equity derivatives.
By contrast, Barclays’ Wall Street rivals saw bond trading revenues rise by an average of 21 percent in the first quarter, with investors adjusting their portfolios in response to rising interest rates and elections in Europe.
Deutsche Bank reported on Thursday that its markets business also lagged its US peers last quarter. However, it did report an increase in revenues.
Analysts were unimpressed by Barclays’ results.
“After a strong set of fixed-income results from US and European peers, Barclays’ Q1 results are disappointing,” Bank of America Merrill Lynch analysts said.
Barclays shares traded 4 percent lower early in the morning, their worst day since the aftermath of the Brexit vote last June.
Staley attributed the poor performance to weakness in the bank’s US rates business and a tough comparison with the previous year, and said it would be wrong to start questioning the business based on one quarter’s performance.
Staley’s attempts to revitalise the investment banking business have been clouded by probes in the US and Britain and criticism from investors following his attempts to unmask a whistle blower.
Barclays said its profit before tax was £1.7bn, up from £793m a year ago and better than the £1.46bn average estimate of analysts’ forecasts compiled by the bank.
But part of that increase was driven by proceeds from the sales of a credit card portfolio and a gain in the value of the bank’s preference shares in Visa, with underlying earnings growth more muted.
Barclays still faces a series of regulatory obstacles, with an ongoing probe by Britain’s Serious Fraud Office over its 2008 cash call at the height of the financial crisis and accusations by the US Department of Justice over mortgage mis-selling.
Barclays also faces a further headache from political upheaval in South Africa, which is hindering the bank’s efforts to sell its business there – a key element in its strategy to boost capital levels to meet regulators’ demands.
Barclays said it would take a oneoff goodwill impairment charge of £884m on its stake in Barclays Africa Group, which it has given itself two to three years to sell down.
Its core capital ratio, a key measure of financial strength, rose from 12.4 percent to 12.5 percent last quarter, making it the most thinly capitalised of the major UK banks.
“The bank continues to ride a capital tightrope,” Bernstein analysts wrote.
“UK macro and South African politics will dictate whether Barclays escapes another capital raise,” they added. – Reuters