Barclays Shares Slump on Weak Investment Bank--Update
October 26 2017 - 3:52AM
Dow Jones News
By Max Colchester
LONDON--Can Barclays PLC Chief Executive Jes Staley run a
profitable investment bank on the cheap? Investors aren't yet
convinced.
Shares in the British bank fell 5% in early trading Thursday as
the bank reported its investment bank trading engine stuttered in
the third quarter of the year.
Like others in the industry, Barclays's investment bank was hit
by low market volatility pinching trading revenues. The bank's
fixed income trading dropped 34% in the quarter, which was better
than its European rival Deutsche Bank AG but still lagged behind
several of its U.S. peers.
Overall the bank recorded a third-quarter profit, helped by a
fall in conduct and operating costs. But the share drop reflects
how investors are increasingly skeptical that Mr. Staley can build
a competitive, and profitable, investment bank without pouring in
huge resources.
Barclays is currently looking to sweat capital out of its
corporate lending book and redeploy it into its investment bank. On
Thursday, Mr. Staley laid out his plan to improve the markets
business, which has included bumping up leverage and the recent
hiring of around two dozen new bankers. Fixing the unit is
priority, as around 60% of the group's capital is locked up in the
business, according to Claire Kane, an analyst at Credit
Suisse.
Unlike its major U.S. competitors, capital is tight at Barclays
and there was still no sign on when it would increase its dividend.
That announcement will likely be made during the bank's full-year
presentation early next year. Mr. Staley said that the issue of
capital at the bank "was off the table" and that shareholders are
mainly worried about dividends.
Following gripes from investors that the group's strategy was
too vague, Barclays on Thursday clarified its targets saying it
would have a return on equity of greater than 9% in 2019 and
greater than 10% by 2020. Currently, the bank's return on equity is
5.1%. Costs in 2019 will be between GBP13.6 billion and GBP13.9
billion (between $18 billion and $18.4 billion), but that excludes
litigation and conduct charges and other investments.
The British bank said revenue in the quarter was down 5% to
GBP5.17 billion compared to a year ago, as bond trading revenues
slumped. Net profit rose to GBP583 million from GBP414 million a
year ago, bolstered by the bank's U.K. retail operations offsetting
the pain felt in the investment bank. Lower costs and conduct fines
helped too.
After ditching billions of assets, cutting 60,000 staff and
exiting over a dozen countries including most of Africa, the
British bank is moving into the next stage of a plan to shed costs.
Year to date Barclays shares are down 12%, among the worst
performing share price of any major European bank.
Conduct issue continue to weigh on the bank. Tightening
regulations and a potential settlement with U.S. authorities over
its alleged role in the packaging of U.S. subprime mortgages, could
all eat into capital levels. Meanwhile after a deluge of unsecured
lending in the U.K. and the U.S., some analysts fear a spike in
impairments which could hit Barclays hard.
A cloud sits over Mr. Staley himself. The banker is being probed
over his efforts to unmask a whistleblower. But Barclays did put
one legal matter behind it during the quarter: It said it had
reached a $105 million agreement in principle with the U.S. Federal
Energy Regulatory Commission over the banks alleged role in
manipulating electricity markets in the Western U.S.
Write to Max Colchester at max.colchester@wsj.com
(END) Dow Jones Newswires
October 26, 2017 04:37 ET (08:37 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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