LONDON – Barclays said Thursday that its third-quarter earnings had fallen 26 percent, driven by a weaker performance in its investment bank and legacy issues as the British lender adjusts to life as a smaller bank.
Barclays is in the process of transforming itself into a much smaller lender with a less risky balance sheet. It is shrinking its investment bank, created in part by its acquisition of the North American business of Lehman Brothers out of bankruptcy six years ago, and it has jettisoned other operations as it focuses on lending in Britain and Africa.
For the three months ending June 30, Barclays posted net income of 379 million pounds, or about $610.8 million, in contrast to a profit of £511 million a year earlier.
During the quarter, Barclays took a £500 million charge for potential fines and litigation costs related to a continuing industrywide investigation into the potential manipulation of the currency markets.
Tushar Morzaria, the Barclays finance director, said the £500 million provision represented its “best estimate,” based on talks the bank was having with certain regulators, whom he declined to name.
Those discussions “are fluid and they are continuing,” Mr. Morzaria told journalists on a conference call on Thursday.
Many of the world’s largest banks have been drawn into the investigations, which are examining whether traders conspired to manipulate the $5-trillion-a-day foreign exchange markets.
Several banks, including Barclays, are in negotiations with the Financial Conduct Authority of Britain in the inquiry, and they are hoping to reach a settlement by next month, according to people briefed on the matter.
“The investment bank’s performance in the quarter was disappointing, but we have been able to offset that within the rebalanced group and still deliver good core performance,” Antony P. Jenkins, the Barclays chief executive, said in a news release.
The bank also took a £364 million loss related to the sale of its Spanish banking business to CaixaBank in September as Barclays looks to shed riskier and money-losing businesses as part of its turnaround.
That was offset in part on a gain of £461 million recorded on certain assets obtained during its acquisition of Lehman Brothers.
On an adjusted basis, which excludes the legal provisions and other one-time charges, Barclays reported a pretax profit of £1.59 billion in the third quarter, up from £1.39 billion a year earlier. The adjusted results were ahead of analysts’ expectations.
The bank’s earnings were driven by improvements in the lender’s retail businesses, including African banking and credit cards, but results were “weaker than expected” in its investment bank, Andrew Coombs and Ronit Ghose, analysts at Citigroup, said in a research note on Thursday.
The foreign exchange investigations are the latest distraction for Barclays as it continues to try to get a handle on legacy issues, many dating back to the financial crisis.
Like many of its British colleagues, the bank continues to take provisions to cover claims by consumers that they were improperly sold loan protection insurance, which has cost the industry billions of pounds in payments to clients. Barclays set aside an additional £170 million for insurance claims in the third quarter.
It is also facing a lawsuit by the New York attorney general over its private stock market, known as a dark pool. Barclays has asked for the lawsuit to be dismissed and has said the attorney general, Eric T. Schneiderman, overstepped his authority.
On the conference call, Mr. Morzaria said that concerns by clients over the dark pool lawsuit cut into its investment banking business in the third quarter, particularly in its markets segment.
Last month, Barclays was fined £37.7 million by British regulators for failing to properly segregate billions of pounds in clients assets, potentially putting them at risk if the bank were ever to become insolvent. It was the highest fine ever imposed by the Financial Conduct Authority, or its predecessor agency, for such a breach.
Operating expenses declined about 7 percent to £3.98 billion, but the lender booked higher restructuring charges of £332 million as it continues its transformation.
Barclays plans to cut up to 19,000 jobs over the next three years, including 7,000 in the investment bank by 2016. It will also focus on four important businesses: its smaller investment bank, British retail and corporate banking, Barclaycard, and Africa banking.
In the investment bank, pretax income declined 39 percent to £284 million in the third quarter, down from £465 million in the same period a year earlier. Income from investment banking fees fell 22 percent, and income from trading and other markets activity was down 13 percent.
British retail and corporate banking business and the bank’s credit card business, Barclaycard, both reported gains. Pretax profit fell 11 percent in its African business, primarily driven by changes in currency rates.
Several competitors, including Lloyds Banking Group, have announced plans this year to trim their branch footprint in Britain as more customers do most of their banking online or on their mobile phones.
Mr. Morzaria, the Barclays finance director, said the bank did not have a target for branch closures and was focused on making transactions convenient for its customers whether at a branch, online or while they are shopping at a retail outlet where Barclays has opened locations.
“We have a large branch footprint of over 1,500 branches in the U.K.,” Mr. Morzaria said. “I suspect we will continue to have a large branch footprint.”
The bank’s common equity Tier 1 capital, a measure of its ability to absorb losses, rose to 10.2 percent at the end of the third quarter, from 9.9 percent at the end of the second quarter.
Banks are required to have a minimum of 4 percent common equity Tier 1 capital under Europe-wide rules, but larger lenders are required to maintain a higher minimum capital level, which is set by national regulators.
The New York Times
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