Barclays Posts Loss, Weighed Down by U.S. Settlement -- 3rd Update

By Max Colchester 

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 [e-mail]

(END) Dow Jones Newswires

April 26, 2018 10:31 ET (14:31 GMT)

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