Investment banking arm drags down Barclays profit

● Pre-tax figure slips to £1.5bn at underlying level ● Cost controls see bank move to profit at the bottom line

Banking major Barclays has warned that it may need to cut costs further this year after a tough quar ter for its investment arm dented profits.

The group reported underlying pre-tax profits of £1.5 billion for the first three months of 2019, compared with £1.7bn a year earlier, after a testing period for investment banking.

Barclays cautioned that if the “challenging income environment” continues, it may need to trim costs again to meet financial r e tur ns targets. It h a s a l r e a dy c u t b o n u s a n d compensation payouts across its corporate and investment bank to reflect the division’s weak first- quar ter performance.

On a bottom-line basis, the bank swung to a £1.5bn pre - tax profit in the quarter, from losses of £236 million in the opening three months of 2018, wh e n i t wa s h i t b y a r o u n d £2bn of conduct and litigation charges.

John Moore, senior investment manager at Brewin Dolphin, said: “Barclays’ results are robust in what has been an uncertain start to the year.

“H o we v e r, w h i l e m a r k e t volatility should have boosted trading profits at its investment banking division, fees were weak and its return on equity dropped to 9.5 per cent from 13.2 per cent during the sa me p er i o d la s t year. This may embolden Edward Bramson, the activist investor agitating to shrink or spin off this part of the business.

“The ‘proper’ bank looks to be in decent shape, with profits up at Barclays UK and the wider group.”

Nicholas Hyett, equity analyst at Hargreaves Lansdown, noted: “These are a messy set of results, the non-recurrence of massive conduct charges has b o osted rep or ted numb e r s , w h i l e o n e - o f f w r i t e backs in US loans are negatively impacting the underlying figures.

“Sweep all that aside though and eyes will focus on the poor results from the investment bank.

“A p o o r r e s u l t f r o m t h e investment bank isn’t a great surprise, international rivals have flagged pretty tough conditions across the market and Barclays is keen to point to a growing share of global banking fees.”

The difficult first quarter for investment banking meant that underlying pre-tax profits at the international division fell 20 per cent to £1.14bn. The corporate and investment banking arm saw a slowdown in trading, but this was partly offset by falling costs as the bank cut bonuses.

Group chief executive Jes Staley said: “Three years ago, we took a charge of just under £400m to allow us to better align variable compensation accruals with the firm’s revenues. What you see in the first quarter is Barclays using this discretion around variable compensation to manage our costs and deliver expected profitability.”

sreid@scotsman.com