Barclays Trading Revenue Outperforms Wall Street Peers
Barclays Sees Challenging 2020 Even as Investment Bank Rallies
(Bloomberg) -- Barclays Plc’s investment bank rallied, outperforming Wall Street peers in the third quarter, as revenue from fixed-income and equities trading advanced.
The corporate and investment bank’s third-quarter income jumped 17% from the same period a year earlier, Barclays said in a statement on Friday. Trading income rose 13%, compared with an average of 6.4% for its U.S. peers. Still, Chief Executive Officer Jes Staley struck a cautious note, warning that low interest rates and Britain’s Brexit-hit economy will make it tougher to meet the bank’s targets next year.
The shares rose as much as 3.1% in London trading, reaching their highest in almost a year. Staley, who said it was the bank’s best third quarter on record for equity and debt capital markets and merger advisory, has staked his job on reviving the investment bank. Its profitability lags behind other Barclays businesses and had attracted criticism from an activist investor.
“This is a good set of numbers,” said John Cronin, an analyst at Goodbody. “While the outlook statement is more cautious than before, this will not surprise market participants. Geographic and product diversification and substantive U.S. dollar exposure are benefits in the context of a very uncertain U.K. outlook.”
The CIB unit’s revenue of 2.62 billion pounds ($3.4 billion) beat the 2.42 billion-pound consensus analyst estimate. Staley cautioned in a conference call that investors “can’t count out” a repeat of last year’s fourth quarter, when market turmoil rocked many of the big investment banks, especially in Europe. Barclays outperformed many of its peers in that quarter, too.
Barclays also remains “fully invested” in its equity business, Staley said. “We’d like to be doing stronger in equities than we are right now,” he said.
‘Unquestionably Challenging’
Barclays joins other British lenders, such as Royal Bank of Scotland Group Plc, in warning that the domestic economy is a threat to its targets. Barclays finance chief Tushar Morzaria said the bank would be taking a “defensive posture” on unsecured U.K. credit. Barclays executives also said they expect net interest margin to shrink in the next quarter.
As the Brexit process drags on, Staley said he hopes for an end to the uncertainty. “Allowing the financial system to begin to execute with an idea of what the future is going to look like -- I do think that’s important.”
Barclays aims to boost return on tangible equity, a key measure of profitability, above 9% this year and then raise it past 10% in 2020. While Staley didn’t revise those targets, Citigroup Inc. analysts have said 7% is a more realistic goal in the near term. To have any hope of meeting the targets, the American-born CEO must maintain a tight grip on expenses.
“The outlook for next year is unquestionably more challenging now than it appeared a year ago, in particular given the uncertainty around the U.K. economy and the interest rate environment,” Staley said in a statement on Friday.
Staley repeated that Barclays plans to reduce expenses beyond its previous guidance, which had a lower bound of 13.6 billion pounds. He elaborated on the challenges facing the U.K. economy during a conference call.
“We’re just highlighting the reality that interest rates are much lower, that uncertainty of Brexit continues,” Staley said. “We just want to be realistic about our targets for next year.”
Credit Cards
Credit impairment charges jumped to 321 million pounds at its consumer, cards and payment unit, more than double the 146 million pounds booked in the same quarter last year. The London-based lender spent several years working to expand beyond card partnerships with brands such as Uber Technologies Inc. and American Airlines Group Inc., but it recently turned away from an ambition to build a Barclays-branded digital consumer bank in the U.S.
The bank also said it held discussions with its regulators about how it calculates risk-weighted assets. As a result, its common equity Tier 1 ratio, a measure of financial strength, was increased to 13.5%.
According to the bank’s first-half results, Barclays shed about 3,000 jobs in the second quarter and cut variable compensation by more than 20%. Staley’s brake on expenses has caused tumult in the executive suite: in a dispute over bonus cuts, he ousted his hand-picked head investment banker, Tim Throsby, and took direct control of the unit last spring.
The stock has lost about 25% since Staley took the top job in December 2015. That sluggish performance led activist Edward Bramson to launch a campaign against the CEO’s strategy last year, arguing that the bank should redeploy capital from its investment bank to higher-returning businesses like retail banking and credit cards. Bramson has repeatedly said the lender is following a “destructive strategy."
The bank took a 1.4 billion-pound charge for customer redress in the payment-protection insurance scandal, which has embroiled the big U.K. banks for years. That’s in the middle of the bank’s previously announced range, and Staley said on a conference call that he hopes it’s the last major charge Barclays has to face.
--With assistance from Donal Griffin.
To contact the reporter on this story: Stefania Spezzati in London at sspezzati@bloomberg.net
To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Keith Campbell
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