Barclays triples annual profit as bad debts fall

Barclays’ profit more than quadrupled in the fourth quarter as a deal boom boosted its investment bank, while it freed up more reserves it had set aside to cover related potential loan losses to the pandemic.

Net profit of £1.1bn (€1.32bn) rose from £220m in the same period a year earlier, comfortably beating analysts’ expectations of £643m sterling, the British bank announced on Wednesday.

Revenue rose 4.4% to £5.2bn, slightly above the £5.1bn estimate, largely due to a recovery in consumer spending in its retail banking and international credit card businesses.

However, much of the outperformance was due to a one-time release of £31m of loan loss reserves set aside for defaults caused by coronavirus lockdowns, which are no longer needed as the economic prospects are improving. This compares to a further £492m of writedowns added over the same period in 2020.

Analysts also expressed concern over a sharp drop in investment bank trading revenue at the end of last year, which compared poorly with rivals on Wall Street and across Europe.

Weaker performance

“UK revenue and cards offset weaker market performance and costs were contained,” Jefferies analyst Joseph Dickerson said. He described it as a “strong quarter” with the bank’s lending business positioned to benefit from rising interest rates.

Barclays said it would pay a total dividend of 6p per share for 2021 and would buy back a further £1bn on top of the £500m already announced. Its shares rose 2.9%.

The results are the first under managing director CS Venkatakrishnan, the lender’s former chief risk officer and chief commercial officer. Mr Venkatakrishnan replaced Jes Staley in November after Mr Staley resigned amid an investigation by regulators into his past relationship with convicted sex offender Jeffrey Epstein.

The Barclays board separately announced that it had frozen Mr Staley’s unvested share awards worth millions of pounds pending the outcome of the regulators’ investigation.

In 2020 and through much of 2021, investment banking revenue surged as turbulent markets during the peak of the pandemic were followed by a record deal boom that lifted the advisory unit. However, this is now showing signs of fading.

Cost reduction

The investment bank’s pre-tax profits jumped 32% to £1bn in the quarter, beating analysts’ estimates of £753m. However, this was largely due to lower costs, while revenue was flat at £2.6bn, which missed the forecast.

Capital markets and mergers and acquisitions fees rose 27% to £956m, on par with strong gains recorded by Wall Street rivals earlier this month.

However, the commercial side was disappointing. Revenue fell 23% to £1bn as market volatility returned to normal after the chaos of late 2020.

Fixed income revenues fell 33% – double the average decline of US competitors and worse than any other European bank other than crisis-ridden Credit Suisse – while equities fell 8% against a rise of 1% on Wall Street, Citigroup analysts noted. .

Barclays also increased its bonus pool for 2021 by almost a quarter to £1.9bn, a more conservative increase than its US peers. – Copyright The Financial Times Limited 2022

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