Barclays Shares Fall After Surprise Drop in Trading Revenue

(Bloomberg) -- Barclays Plc fell the most in almost six months after posting a surprise drop in trading across debt and equity.

The firm reported an unexpected decline in fixed-income trading revenue, contrasting with a 24 percent jump achieved by its five largest American counterparts and a smaller increase at Deutsche Bank AG, its biggest competitor in Europe. Income from equities trading also fell more than expected, while investment banking fees surged.

Chief Executive Officer Jes Staley, 60, has thrown his weight behind the investment bank in London and New York, arguing a securities unit is a valuable counterbalance to its more profitable retail and credit card businesses. Capturing market share from European peers that are retreating from some markets is key for the unit to boost its returns.

“We didn’t have the uptick that a number of the U.S. banks did” and “we always want to do better in the markets business,” Staley said in a Bloomberg Television interview. “We could have done a little better on the U.S. rates side, but we’re not going to make any judgments on one quarter.”

The shares fell as much as 5.3 percent, the biggest drop since November, and were down 4.5 percent to 213.9 pence at 10:14 a.m. in London. The decline would be the worst earnings-day reaction in five quarters. Although the stock has climbed about 25 percent in the past 12 months, it still trades at about two-thirds of the book value of its assets.

The trading performance marked the first quarter under Tim Throsby, who was poached from JPMorgan Chase & Co. last year to help turn around the investment bank. Staley has touted the need for Europe to have a successful investment bank based in the region, as American firms have progressively seized a greater share of the trading and merger advisory businesses in recent years.

Debt Underwriting

Fixed-income trading dropped 1 percent to 889 million pounds, while the equities business plunged 10 percent to 462 million pounds, according to the filing. Analysts surveyed by Bloomberg News had expected Barclays’s fixed income revenue to rise 17 percent, while the equities unit was forecast to slump 5 percent, according to the average of four estimates. Trading typically accounts for about a quarter of the firm’s revenue, with fixed-income almost twice the size of equities.

The five largest Wall Street banks benefited from market volatility as investors wagered on the pace of interest rate increases. Deutsche Bank posted an 11 percent gain in bond trading, while Credit Suisse Group AG was up 30 percent.

One bright spot for Staley and Throsby was the performance in investment banking, which includes fees for merger advice and debt and equity underwriting. Revenue in that business rose 51 percent to 726 million pounds. The CEO said Barclays recorded its best debt underwriting quarter in the history of the bank.

Profit Misses

Total revenue climbed 16 percent to 5.82 billion pounds, exceeding analysts’ 5.67 billion-pound forecast. The jump was driven by a better-than-expected performance in the bank’s U.K. retail division and a 48 percent jump in the international credit cards and payments business, according to JPMorgan analyst Raul Sinha.

Barclays’s pretax profit more than doubled to 1.68 billion pounds, Barclays said in a statement Friday. However, JPMorgan and Citigroup Inc. analysts said the earnings missed their estimates.

“We view these as slightly disappointing results,” Citigroup’s Andrew Coombs said. “The weak investment bank revenues are notably below expectations.”

Barclays also announced plans to hire 2,000 technology and customer service staff in the U.K. as it brings more of its system development and management in-house to cut dependence on outside contractors. About half of those employees have been recruited already, with the remainder to come over the next three years, the CEO said.

Whistle-Blower Scandal

Any progress Staley has made turning around the British lender risks being overshadowed by his attempts to unmask an anonymous whistle-blower in violation of company policy, revealed two weeks ago when the board reprimanded the CEO and reported him to regulators. Staley may forfeit his entire 1.3 million-pound 2016 bonus over the scandal and could lose his job if regulatory investigations deem him unfit to run a bank.

“The full board of the bank did its review and voted unanimously to support me as CEO of Barclays; all the color I’m getting from shareholders is quite positive,” Staley said in the Bloomberg Television interview. “I work at the pleasure of shareholders and the board, and the board has been very supportive, so let’s see.”

The lender faces other misconduct and litigation issues. The U.K. Serious Fraud Office is investigating Barclays’s 2008 emergency fundraising backed by Qatar, and the firm is preparing to go to court to fight the U.S. Department of Justice over the size of a fine for the sale of toxic mortgage-backed securities before the financial crisis.

The bank also took an 884 million-pound writedown on its African unit, which it is in the process of selling. The bank is waiting for final approval of a separation agreement from the finance minister of South Africa before it can reduce its remaining 50.1 percent stake, Staley said in the television interview.

--With assistance from Anna Edwards

To contact the reporter on this story: Stephen Morris in London at smorris39@bloomberg.net.

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Keith Campbell