Leap in Q1 profits at Barclays fails to calm investors' fears

BARCLAYS FAILED to impress the market yesterday despite reporting a near-50 per cent rise in first-quarter profits, as growth stalled at its prestigious investment banking arm.

The shares fell more than 5 per cent as investors took fright at a 26 per cent drop in underlying income at BarCap, the division headed by the bank’s American president, Bob Diamond.

The reaction came as more than 6 per cent of Barclays investors voted against a pay scheme that could see Mr Diamond awarded more than £6 million (€6.9 million) by 2012 if certain performance targets are met.

Analysts said that while pretax profit at BarCap was strong – the division reported growth of more than 60 per cent following a sharp fall in loan impairments – the slowdown in revenue was weaker than expected.

“Investors would have preferred better underlying income growth than the reduction in impairments,” said Steven Hayne at Morgan Stanley.

The lower revenue at BarCap – which was caused by a weaker performance from its commodities division – followed a record first-quarter in 2009, when underlying income soared to more than £5 billion.

US investment banks had announced resilient figures for their fixed income, currencies and commodities (FICC) businesses in recent weeks, prompting high hopes for Barclays. But Credit Suisse estimated that underlying income at BarCap’s FICC division fell by almost 40 per cent in the first quarter compared with the same period last year.

BarCap still generated £1.4 7 billion of pretax profit in the first quarter – about 80 per cent of the total generated by Barclays and a strong improvement on the £907 million it achieved in the same quarter last year. Total pretax profit at the bank was £1.8 billion in the three-month period, up from £1.2 billion last year, as loan impairments fell by more than one-third.

Barclays executives largely escaped criticism from shareholders at a subdued annual meeting, although a number expressed concerns over pay.

In response to the bank’s defence of Mr Diamond’s pay, one said that while he may have earned less last year than at the peak of the market in 2007, he was “hardly suffering”.

Another pressed for more weight to be given to fixed salaries rather than one-off bonuses.

Barclays shares closed down 20.3p at 341p. – Copyright The Financial Times Limited 2010