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Barclays profits plunge as investment banking business suffers

Published 27/04/2016

Barclays will reveal the impact of a dire start to the year in the investment banking sector
Barclays will reveal the impact of a dire start to the year in the investment banking sector

Banking giant Barclays saw profits tumble by a quarter in the first three months of the year as it was hit by tough trading in its investment banking arm.

The group posted first quarter pre-tax profits of £793 million, down from £1.1 billion a year earlier as underlying profits in its corporate and investment banking business dropped 31%.

Barclays also announced talks with AnaCap Financial Partners to sell its 74-branch business in France as boss Jess Staley continues to overhaul the lender.

The group insisted its core business put in a resilient performance, with profits up 18% to £1.6 billion, but said this was dragged lower by loss-making parts of the business.

Mr Staley said the results "show a core business performing well in a challenging environment".

He added that moves to shed unprofitable divisions are cutting costs "which have a direct impact on our profitability today and mask the true performance of our strong core business".

"This is the work we need to complete," he said.

Barclays said it was "cautious" ahead of the June 23 referendum on European Union membership.

On second quarter trading so far, it said there had been little improvement for the investment banking business, with income down slightly further on a difficult first quarter, although the group added it was "too early" to comment on overall performance in the second quarter.

The update follows a dismal clutch of earnings on Wall Street after the new year stock market turmoil caused a collapse in trading and fee income.

Barclays had already warned over first quarter trading, saying alongside its annual results in March that figures were set to be weaker than last year in the face of turbulent market conditions and a ''particularly strong March in 2015''.

Bosses are set to face shareholders at its annual general meeting on Thursday as criticism mounts over Mr Staley's pay deal amid falling profits.

Investors have seen the stock slump by a third in the last six months, while dividend payouts will more than halve over the next two years.

The bank is undergoing a revamp under Mr Staley, who since January has continued to shrink the investment banking business, and sold its business in Portugal as well as a raft of other overseas divisions.

He is also trying to find a buyer for Barclays' stake in its African business and t he bank said it was continuing to "explore opportunities".

A consortium headed by former Barclays chief executive Bob Diamond has said it is raising funds to make a bid for the business.

Despite the sharply lower investment banking returns, Mr Staley said the investment bank performance was "relatively resilient in a tough quarter, but there is more we must do to improve returns".

Its high street banking business in the UK also suffered a tough start to the year, with profit before tax down 17% to £704 million.

Mr Staley, who replaced Antony Jenkins at the helm in December, recently split the bank into two divisions - Barclays UK and Barclays Corporate & International - in line with incoming rules to ring-fence more risky operations from retail banking.

His pay will be in sharp focus at Thursday's AGM after shareholder advisory groups hit out at the size of his salary.

He is paid £1.2 million in annual salary and £1.15 million in role-based pay, with annual bonuses worth a potential 80% of salary and long-term share awards worth a possible £1.44 million.

Proxy voting agency Manifest and shareholder advisory group Pirc have criticised the annual salary, with Pirc calling for a vote against its remuneration report.

Barclays shares rose 3% as the hit to its investment bank was not as bad as feared, with revenues down by 4% year-on-year, which compares well against many of its US peers.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: " 'Barclays joins Standard Chartered in the camp of beating low expectations for the first quarter.

"Profits were significantly lower than a year ago, but that is a marked improvement on the £2.1 billion loss registered in the fourth quarter of last year."

Analysts at Haitong added: "Overall these are reassuring numbers."

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