Barclays’ quarterly profit surges as dealmaking boosts investment bank

Barclays’ profit more than quadrupled in the fourth quarter as a dealmaking boom boosted its investment bank, while it released more reserves that it had set aside to cover potential loan-losses linked to the pandemic. Net income of £1.1bn increased from £220mn in the same period a year earlier, comfortably beating analysts’ expectations for £643mn, the British bank said on Wednesday. Revenue rose 4.4 per cent to £5.2bn, slightly more than the £5.1bn estimate, largely due a recovery in consumer spending in its UK retail bank and international credit cards business. However, much of the outperformance was due to a one-off release of £31mn of loan loss reserves set aside for defaults caused by coronavirus lockdowns, no longer required as the economic outlook improves. That compared with an extra £492mn in impairments added in the same period in 2020. Analysts also expressed concern about a sharp drop in investment bank trading revenues at the end of last year, which compared poorly with rivals on Wall Street and across Europe. “Revenue in UK and cards offset a weaker markets performance and costs were contained,” said Jefferies analyst Joseph Dickerson. He described it as a “solid quarter” with the bank’s lending businesses positioned to benefit from rising interest rates. Barclays said it would pay a total dividend of 6 pence a share for 2021 and buy back another £1bn of stock in addition to the £500mn already announced. Its shares rose 2.9 per cent. The results are the first under chief executive CS Venkatakrishnan, the lender’s former chief risk officer and trading head. Venkatakrishnan replaced Jes Staley in November after Staley resigned amid an investigation by UK regulators into his past relationship with convicted sex offender, Jeffrey Epstein. The Financial Times has reported that when Staley worked at JPMorgan Chase several years ago he exchanged 1,200 emails with Epstein over a four-year period, with content that included unexplained terms such as “snow white”. The cache is at the centre of regulators’ concerns that Staley mischaracterised how close his relationship was with the deceased financier. Staley is contesting the preliminary conclusions. Barclays’ board separately announced that it had frozen Staley’s unvested share awards worth millions of pounds until the outcome of the regulators’ probe. Venkatakrishnan, who worked with Staley at JPMorgan, has vowed to maintain the core of his predecessor’s strategy, which is based on building up the investment bank into a viable competitor to Wall Street. He said on Wednesday that he “cannot and will not comment” on the situation with Staley – who has has previously described as his “manager, mentor and friend” – and has been recused from any board discussions or decisions about the ex-CEO. In 2020 and for much of 2021, revenues surged at the investment bank as turbulent markets during the peak of the pandemic were followed by a record dealmaking boom that lifted the advisory unit. However, this now shows signs of fading. Pre-tax profits at the investment bank jumped 32 per cent to £1bn in the quarter, exceeding analysts’ estimates for £753mn. However, this was largely due to lower costs, while revenue was flat at £2.6bn, missing forecasts. Fees from capital markets and M&A rose 27 per cent to £956mn, comparable to the big gains posted by Wall Street rivals earlier in the month. However, the trading side was disappointing. Revenue dropped 23 per cent to £1bn as market volatility returned to normal from the chaos of late-2020. Fixed income revenue fell 33 per cent — double the average fall at US rivals and worse than any other European bank other than crisis-stricken Credit Suisse — while equities declined 8 per cent versus a 1 per cent increase on Wall Street, analysts at Citigroup noted. “We are the sixth ranked bank [globally] and we have a sustained commitment to the business,” Venkatakrishnan said when asked about the sustainability of earnings in the volatile sector. “I believe greatly that the process of improvement in market share is continuing.” Barclays also increased its bonus pool for 2021 by almost a quarter to £1.9bn, a more circumspect increase than US peers. Citi analyst Andrew Coombs said this would “likely raise questions about competitiveness in light of higher compensation guidance at peers, such as JPMorgan”. For the full year, Barclays’ net profit rose to a record £6.3bn in 2021 from £1.5bn in 2020 and the bank made a 13.4 per cent return on equity. A major reason for the dramatic turnround was that the bank released £653mn of loan impairments in 2021 compared with adding £4.8bn in provisions in 2020 at the peak of the pandemic. Barclays also said that its chief financial officer Tushar Morzaria would retire in April and be replaced by his deputy, Anna Cross.