Barclays, StanChart Traders Hold Fort With Coronavirus Losses Looming

(Bloomberg) --

Traders sustained profits at Barclays Plc and Standard Chartered Plc in the first quarter as the U.K.-based lenders braced for the full impact of the coronavirus pandemic.

Barclays’ trading revenue surged 77%, the most reported so far by a global bank for the three months ended March 31. The investment bank also started the second quarter well, finance director Tushar Morzaria said on Wednesday. At Standard Chartered, the financial markets business contributed the biggest boost to the income growth.

Like banks around the world, Barclays and StanChart benefited from unprecedented market volatility when the pandemic curtailed much global commerce. But as the other shoe began to drop, provisions for loan losses took the first bite out of the bottom line. Barclays set aside 2.1 billion pounds ($2.6 billion), its biggest quarterly provision in a decade; Standard Charted booked $956 million, the biggest provision since 2015.

“The huge investment bank performance is clearly not sustainable,” said Edward Firth, an analyst at Keefe, Bruyette & Woods, referring to Barclays. It’s a “low quality income but a fortunate boost that protects capital at a time of elevated impairments.”

Barclays shares jumped as much as 8% to the highest in a month, and StanChart added as much as 7%.

‘Very Conservative’

Top executives at both banks have said that it’s difficult to make a call on the amout of charges this year. Barclays took a “very conservative posture,” Chief Executive Officer Jes Staley said, given the cushion offered by the investment bank.

Barclays’s fixed income, currencies and commodities revenue grew more than 100% in a record quarter. Currency traders at StanChart had their best quarter in more than four years, continuing a trend seen at HSBC where rates and foreign exchange made more than $1 billion in a quarter for the first time since at least 2012.

Still, economic prospects are grim. In the last week of March – when the U.K. entered in lockdown -- U.K. card spending dropped by 52%, Barclays said. The U.S. and U.K. economies could contract by almost half at the worst point, according to Barclays.

“There are still plenty of challenges ahead,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown. “Diversification has been a boon so far, but in times of huge financial stress all markets move as one.”

The profit before tax at Barclays U.K. declined by 70% while its card and payment division booked a loss of 381 million pounds.

‘Early Alerts’

The worsening economic backdrop led Standard Chartered to add $6.2 billion to its pool of high-risk assets as it triggered a series of “early alerts” on businesses in sectors most likely to suffer during the crisis. The bank said that two-thirds of the increase in alerts were due to the aviation industry. StanChart Chief Financial Officer Andy Halford said he hopes that the North Asia markets will be the first one to recover.

Barclays has a 26.4 billion pound exposure to vulnerable sectors including hospitality, airlines, transportation and retail while its oil and gas exposure amounts to 16.2 billion pounds, lower than HSBC’s $25.7 billion.

Barclays is also studying how employees will return to the workplace. Staley said “it’s going to be gradual” and that Hong Kong will be the first office to see employees return. Another option is to send investment bankers work from local bank branches once the pandemic recedes.

©2020 Bloomberg L.P.