Barclays PLC (LON:BARC) swung to a profit in the first quarter on a drop in litigation and conduct charges but its under-pressure investment bank was hit by “challenging markets”.
The bank posted a pre-tax profit of £1.48bn for the three months to the end of March, compared to a loss of £226mln a year ago when it forked out US$2bn to settle a lawsuit in the US over the sale of mortgage-backed securities.
READ: Barclays reportedly plans to cut bonuses for investment bankers amid activist investor pressure
Excluding litigation and conduct charges, pre-tax profit fell to £1.54bn from £1.73bn last year due to higher credit impairment charges and weaker returns in the investment bank.
Total income fell to £5.25bn from £5.36bn.
Investment bank sees reduced client activity
The international arm saw pre-tax profit drop to £1.12bn from £1.41bn and income decline to £3.57bn from £3.81bn, reflecting a 11% decrease in income in the investment bank.
Barclays said the investment bank was hurt by reduced client activity, lower volatility and a smaller banking fee pool across the industry.
Activist investor Edward Bramson, whose Sherborne vehicle owns a 5.5% stake in Barclays, wants the company to scale back the investment bank to cut costs and improve returns for shareholders.
He has he called on other shareholders to back his campaign for a seat on the board at the annual general meeting on May 2.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "A poor result from the investment bank isn’t a great surprise, international rivals have flagged pretty tough conditions across the market and Barclays is keen to point to a growing share of global banking fees.
"But 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."
Margin pressures weigh on UK arm
In the UK business, pre-tax profit rose to £585mln from £170mln last year but income dipped to £1.77bn from £1.78bn as margin pressures offset growth in mortgages and deposits.
The net interest margin – a key measure of profitability for banks – fell by 2 basis points to 3.18% amid tough competition in mortgage lending.
The common equity tier 1 capital ratio dipped to 13.0% at the end of March from 13.2% at the end of December as risk weighted assets rose by £7.8bn, mainly due to “seasonality”, dividends and employee share awards.
The group’s return on tangible equity fell to 9.6% from 11.0%.
The cost to income ratio edged down to 62% from 63% and operating expenses decreased to £3.26bn from £3.36bn.
Barclays maintains targets
Barclays said it continues to target a return on tangible equity of more than 9% for 2019 and more than 10% for 2020.
The cost guidance for 2019 remains at £13.6-13.9bn.
“However, should the challenging income environment experienced in Q119 persist, management expect to reduce 2019 costs below £13.6bn,” Barclays said.
The bank added that it would maintain its capital returns policy with a progressive ordinary dividend, supplemented by share buybacks “as and when appropriate”.
Shares dropped 1.5% to 163.8p in morning trading.