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Barclays weathers trading storm thanks to credit surge

Surging credit revenues helped Barclays fare better in sales and trading than its Wall Street investment banking rivals in the first quarter, although the UK bank’s group chief executive Jes Staley said that there is “more we must do to improve returns” at its new corporate and investment banking unit.

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Jes Staley, Barclays CEO

The bank on April 27 posted its first set of quarterly results since the departure of investment bank head Tom King in early March. In that same month the bank formed a new corporate and international division housing its investment bank, large UK corporate, international corporate and international wealth operations, as well as its non-UK Barclaycard businesses.

Staley, the bank’s chief executive since December, said the new corporate and investment bank had proved “relatively resilient in a tough quarter”.

First-quarter revenues from markets, or Barclays’ sales and trading business, fell just 4% from a year earlier to £1.4 billion, compared with double-digit drops of between 11% and 41% at the large Wall Street banks.

Falls of 13% in Barclays’ equities and macro revenues were all but offset by soaring credit revenues, which rose 46% to £322 million – their highest quarterly total for at least two years, according to analysis of past quarterly results restated by Barclays to reflect its new structure on April 14.

In a statement to accompany the results, group finance director Tushar Morzaria said the rise in credit revenues was due to a “strong performance in the US flow business, which benefited from increased market volatility and client activity”.

Banking fees of £481 million dipped 12% from a year before, which Morzaria attributed to “lower equity underwriting and debt underwriting fees, partially offset by higher financial advisory fees”.

Together with a 4% rise in revenues from corporate lending and largely flat revenues from transactional banking, that left total banking revenues 5% lower than a year earlier at £1.18 billion for the quarter.

Overall revenues at the corporate and investment bank slipped 4% to £2.6 billion.

This, coupled with higher impairment charges driven by exposure to the oil and gas sector, and a 6% rise in underlying operating expenses to £1.8 billion – driven by a £90 million rise in restructuring costs and a stronger dollar against the pound, Morzaria said – dragged pre-tax profits down 31% to £701 million from a year ago.

The corporate and investment bank’s return on tangible equity excluding one-off items was 7.3%, lower than any other core division of the bank. A year earlier, the division would have made a 10.7% return, the bank said in a presentation accompanying the results.

Staley also said that Barclays is exploring “capital markets and strategic options” to reduce its majority holding in Barclays Africa, saying that he and colleagues were “pleased with the level of indicative interest”. Former Barclays group chief Bob Diamond has said he is weighing up a move for the business.

Staley said efforts to reduce Barclays’ non-core portfolio of business was progressing, highlighting its decision to exit investment banking in nine countries since January.

In a note titled No fireworks, Jefferies equities analyst Joseph Dickerson described Barclays’ results as “uncontroversial”, adding that “the overall message is that the new CEO is executing well on plans”.

CORRECTION: This story was updated on April 28 with the correct date of Barclays’ results in the second paragraph

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