Barclays hit by struggling investment bank, flags cost cuts

LONDON (Reuters) – Profit at Barclays fell 10 percent in the first quarter as its under-pressure investment bank struggled with tough markets, prompting it to signal further cost cuts if these conditions persist.

The poor investment banking performance comes at an awkward time for chief executive Jes Staley, who is locked in a public battle with activist investor Edward Bramson who wants to see the unit pared back to boost overall returns at Barclays.

Barclays said on Thursday returns in the investment banking business fell to 9.5 percent from 13.2 percent a year ago, while its overall profit was 1.54 billion pounds ($1.99 billion).

Although this was in line with the 1.57 billion forecast compiled from the average estimates of 13 analysts polled by the bank, shares in Barclays were down 1.43 percent at 0730 GMT.

“Despite a better than expected result in fixed income trading, today’s numbers will do little to take the pressure from activist Edward Bramson off the board,” said Nicholas Hyett, analyst at one of Britain’s biggest online investment platforms, Hargreaves Lansdown.

Barclays said that if the tough market conditions persist, it may have to cut annual costs in 2019 below the 13.6 billion to 13.9 billion pound range it earlier said it expected.

The bank said measures it took three years ago to ensure bonus pools in a given year are better aligned with that year’s performance, mean it has more discretion to cut bonuses when performance dips.

“What you see in the first quarter is Barclays using this discretion around variable compensation to manage our costs and deliver expected profitability,” Staley said.

Staley last month ousted his lieutenant Tim Throsby, a fellow former JP Morgan banker who he had recruited in September 2016 to run the investment bank and who then embarked on a hiring spree in a bid to restore morale and performance.

Barclays said income from its equities business fell 21 percent and banking advisory fees were down 17 percent, although earnings from fixed income, currencies and commodity trading (FICC) rose 4 percent.

The drop in equities income follows similar announcements from U.S. rivals such as Goldman Sachs and JP Morgan which saw first quarter declines in trading revenues as client activity slumped.

Barclays’ core capital ratio fell to 13 percent from 13.2 percent at the end of the previous quarter, and its total income of 5.25 billion pounds fell short of analysts’ expectations.

Source – Reuters