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Barclays swings to first-quarter loss as US settlement and PPI hit profits

The bank was hit by a £1.4 billion settlement with the US Department of Justice earlier this month.

Barclays swung to a loss in the first quarter as further payment protection insurance (PPI) charges and a £1.4 billion settlement with the US Department of Justice knocked profits.

The UK bank reported a pre-tax loss of £236 million for the three months to March 31, having reported profits of £1.68 billion in the same period last year.

Stripped of litigation and conduct charges, pre-tax profits rose 1% to £1.7 billion, while attributable profit came in at £1.2 billion.

The bank was hit by a 2 billion US dollar (£1.4 billion) settlement reached with the US Department of Justice (DOJ) earlier this month, related to the sale of mortgage-backed securities in the lead-up to the financial crisis.

Chief executive Jes Staley said: “While the penalty was substantial, this settlement represents a major milestone for Barclays, putting behind us a significant, decade-old legacy matter.”

Barclays booked an extra £400 million to cover PPI charges after seeing a higher number of complaints over the quarter.

Our new operating model and our portfolio of diversified, profitable businesses are capable of producing improved returns for shareholders Jes Staley, Barclays chief executive

While the charges affected Barclays’ CET1 levels – referring to the capital cushion that underpins a bank’s loans – Mr Staley said he was confident in the lender’s position.

“This has been a significant quarter for Barclays, one in which we have shown that our new operating model and our portfolio of diversified, profitable businesses are capable of producing improved returns for shareholders.”

Barclays shares initially slumped 1.5% at the start of trading but recovered by mid-morning to around 1.2%.

Laith Khalaf, a senior analyst at Hargreaves Lansdown, said: “There’s a lot not to like about Barclays’ latest results, although many of the factors hampering the bank are one-off items which don’t speak for the future prospects of the business.

“Stripping out these setbacks, performance has been a disappointment rather than a disaster, which the headline figures by themselves might suggest.”

The PPI charges dragged on returns from its UK business, which suffered a 17% fall in pre-tax profits to £581 million, while its international business saw pre-tax profits rise 4% to £1.4 billion.

The bank’s total income for the first quarter fell 8% to £5.3 billion from £5.8 billion last year.

Barclays said currency movements were partly to blame, given the US dollar’s depreciation against the stronger pound.

The bank celebrated the recent launch of its ring-fenced bank, saying that together with its restructuring last year, it was now “well-positioned to deliver strong earnings going forward and remains confident of achieving its returns and cost targets.”

The bank formally transferred its retail customers to a separate unit as part of new UK regulations meant to protect consumer cash from investment banking risks nine months ahead of the 2019 deadline.

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Barclays chief executive Jes Staley (Barclays/PA)

Speaking to reporters on Thursday, Mr Staley commented on draft warning notices issued by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) over the chief executive’s attempt to identify a whistleblower in 2016.

He said authorities had “obviously completed a very thorough investigation and, you know, we accept where they came out.”

Pushed on whether he would challenge the results of the investigation, Mr Staley said: “I think broadly we are very comfortable with their findings and what we want to do is put this behind us and stay focused on managing the bank.”

The size of the proposed penalty has not been disclosed, but Mr Staley was given 28 days to respond to the warning notice.

The chief executive also confirmed that the bank was set to meet with activist investor Sherborne, run by Edward Bramson, now that first-quarter results have been released.

He said: “It’ll be in the next number of weeks. It will be between management and the team at Sherborne, and we look forward to a very constructive dialogue.”

Reports suggest that Sherborne, which picked up a 5.16% stake in the lender for £580 million last month, is seeking higher returns from the investment bank and looking for bigger payouts for shareholders.

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