Barclays trebles annual profit as bad loans ebb

Board freezes unvested share awards worth millions of pounds to former CEO pending outcome of the Epstein probe

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 £1.1 billion (€1.32 billion) increased from £220 million in the same period a year earlier, comfortably beating analysts’ expectations for £643 million, the British bank said on Wednesday.

Revenue rose 4.4 per cent to £5.2 billion, slightly more than the £5.1 billion estimate, largely due a recovery in consumer spending in its retail bank and international credit cards business.

However, much of the outperformance was due to a one-off release of £31 million 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 £492 million 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.

Weaker performance

“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 £1 billion of stock in addition to the £500 million 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. 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.

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

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.

Lower costs

Pre-tax profits at the investment bank jumped 32 per cent to £1 billion in the quarter, exceeding analysts’ estimates for £753 million. However, this was largely due to lower costs, while revenue was flat at £2.6 billion, missing forecasts.

Fees from capital markets and M&A rose 27 per cent to £956 million, 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.

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