LONDON – Barclays said on Wednesday that it swung to a profit in the second quarter, but, like many of its investment banking peers, continued to be hampered by a series of litigation and regulatory issues.
For the three months ended June 30, Barclays posted net income of 161 million pounds, or about $273 million, in contrast to a loss of £168 million a year earlier. The results were ahead of analysts’ expectations.
It also said that the United States Justice Department had extended until 2015 the period of review imposed as part of a nonprosecution agreement after Barclays admitted to manipulation of global benchmark interest rates by its employees. Prosecutors want more time to review the bank’s conduct as part of an industrywide inquiry into the foreign exchange market.
“We believe this lawsuit is based on clear and factual errors,” Antony P. Jenkins, the Barclays chief executive, said in a conference call with analysts on Wednesday.
Deutsche Bank and UBS are also facing inquiries from Mr. Schneiderman’s office regarding their dark pools.
Mr. Jenkins said that legacy issues continued to have “a significant impact” on the bank’s businesses and that the firm was working “to resolve them as quickly as possible.”
“Where there is a case to answer, we will take responsibility, accept the sanctions, learn the lessons and move on,” Mr. Jenkins said in the call. “I will not tolerate behavior that is inconsistent with our purpose and values. But acting with integrity also means that where are actions are mischaracterized or where we are wrongly accused, we will defend ourselves robustly.”
Barclays is also changing the mix of its business, with less focus on fixed income, currency and commodities operations. One positive sign from its changing business mix: Fee income from underwriting and financial advisory work was up 35 percent in the quarter.
But in its investment banking unit, pretax profit declined by more than half, to £567 million from £1.14 billion a year earlier. The bank plans to shrink the division and cut 7,000 jobs there by 2016.
Despite the lower income in its investment bank, Barclays reported pretax profit gains in its other three core businesses: British retail and corporate banking, Barclaycard and Africa banking.
“Barclays showed good balance sheet progress, strong operating jaws in the [non investment bank] and resilience in the investment bank, which may ease franchise fears,” Michael Helsby and Alastair Ryan, analysts at Bank of America Merrill Lynch, said in a research note on Wednesday.
Still, Barclays’ legacy issues weighed on the quarterly results. The British bank took a provision of £900 million in the quarter related to payment protection insurance, a product that was improperly sold on a widespread basis to consumers in Britain and that has cost banks here billions of pounds in compensation. Barclays alone has paid out £3.56 billion in such claims.
In addition, Barclays set aside another £211 million for litigation and conduct charges.
The bank also agreed in April to a $480 million settlement with the regulator for Fannie Mae and Freddie Mac in a lawsuit over mortgage-backed securities.
For the last two years, Barclays has been subject to a nonprosecution agreement with the United States Justice Department as part of a settlement with the American and British authorities over manipulation of global benchmark interest rates by its employees. Under the agreement, Barclays would avoid criminal prosecution if it refrained from any further misconduct for two years.
But the bank, which agreed to pay $450 million as part of the settlement, said on Wednesday that the Justice Department had extended the period for the nonprosecution agreement for a year as authorities conducted an industrywide investigation into potential manipulation of the foreign exchange market.
The extension, which relates only to conduct subject to the currency inquiry, will give the Justice Department until June 27, 2015, to determine whether Barclays trading activities constituted a “United States crime” under the terms of the agreement.
Those and other legacy issues continue to be a distraction as Barclays shrinks its investment bank and focuses on less risky and capital-intensive businesses as part of a broad restructuring.
The company plans to eliminate up to 19,000 jobs over the next three years. On Wednesday, Barclays said that its headcount after the job cuts this year was at its lowest level since 2007.
The bank’s common equity Tier 1 capital, a measure of its ability to absorb losses, rose to 9.9 percent at the end of the second quarter, from 8.1 percent a year earlier.
European banks are required to have a minimum of 4 percent common equity Tier 1 capital under the so-called Basel III regulatory program, but larger banks are required to maintain a higher minimum capital level, which is set by regulators.
For the six months that ended June 30, profit from the bank’s continuing operations nearly doubled to £1.13 billion, up from £671 million a year earlier.
On an adjusted pretax basis, the bank posted a first-half profit of £3.35 billion, down from £3.59 billion in the period a year earlier.
Shares of Barclays rose 4.24 percent to 228.40 pence a share in trading in London on Wednesday.
Source: The New York Times
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