Barclays Investment Unit Perks Up -- WSJ
April 27 2018 - 3:02AM
Dow Jones News
Revenue growth could quiet investor criticism; bank posts
overall loss for quarter
By Max Colchester
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 27, 2018).
LONDON -- Barclays PLC Chief Executive Jes Staley faced down
investor pressure over its investment bank by boosting revenue at
the unit in the first quarter, even as a settlement with the U.S.
Justice Department pushed the British lender into an overall
loss.
Under pressure from a newly arrived activist investor, Mr.
Staley said Thursday's results were "a validation of the strategy
that we laid out two years ago," reiterating that the lender can
thrive with a diversified business stretching from credit cards to
equity derivatives.
The bank said it made a net loss of GBP764 million ($1.06
billion) in the first quarter, compared with a profit of GBP190
million a year earlier, after it agreed to pay $2 billion to the
Justice Department to settle a claim for selling toxic
mortgage-backed securities before the financial crisis. Total
income totaled GBP5.4 billion in the quarter, down 8% from a year
earlier, when it made a gain on a business disposal.
Despite the reassurances, Barclays's management is still
fighting to prove that it can squeeze strong returns from its
trading unit -- even as other European banks including Deutsche
Bank AG pare down their investment banking activities. Activist
investor Sherborne Investors Management LP took a stake in the
lender earlier in the year, its fund backed by a number of
blue-chip British investors.
Some Barclays shareholders have questioned whether the bank has
the balance-sheet heft to take on larger U.S. rivals in investment
banking and whether the capital plowed into the trading unit
wouldn't be better deployed in more-vanilla businesses. Mr. Staley
said he would meet with Sherborne's management in the coming
weeks.
The corporate and investment bank reported a 1% gain in revenue,
as choppy markets boosted trading activity. Equities income rose
28% -- largely keeping pace with its U.S. rivals -- but revenue
fell 2% in its bond-trading unit. The bottom line at the unit was
helped by a fall in costs and much-lower provisions for bad
loans.
A stronger-than-anticipated performance at Barclays's corporate
and investment bank should ease immediate pressure on the executive
to dramatically alter the direction the bank is going in, analysts
say.
"The investment bank performance was far better than expected,"
said Joseph Dickerson, an analyst at Jefferies.
Another sign of intent: Barclays said it was again expanding its
investment-banking footprint, reopening an office in Australia it
had previously shut. It will also continue to look at reallocating
capital into the trading unit from other businesses.
The first quarter is traditionally strong for investment-banking
businesses, so few are expecting Barclays to repeat the strong
growth in the coming months. Instead, executives hope that a steady
improvement can win over investors in the next year. Mr. Staley
believes that rising interest rates and U.S. tax cuts should fuel
growth at the unit.
Investors are still not sold. Shares in Barclays fell 1.8% in
London trading on Thursday over worries that the bank wouldn't
generate enough profits to fund a mooted share buyback. Barclays
said it would increase its capital ratio in "good time" and
reiterated a pledge to return cash to investors and increase
dividends.
Barclays's retail division, meanwhile, posted a much smaller
profit before tax than a year earlier, hit by a provision to
reimburse customers who were sold insurance products they didn't
need. Across the franchise, bad loans were down significantly due
to improved economic forecasts in the U.S.
Adding to the complicated turnaround was a probe into Mr.
Staley's efforts to unmask a whistleblower. Last week, U.K.
regulators said he could keep his job but will be subject to a
fine. Mr. Staley said he accepted where the regulators "came out,"
adding that it "now it's time to focus on managing the bank."
Write to Max Colchester at max.colchester@wsj.com
(END) Dow Jones Newswires
April 27, 2018 02:47 ET (06:47 GMT)
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