Barclays' profits fell 18 per cent in the first quarter and the bank had to delay a promised £1bn stock buyback as a jump in litigation and conduct provisions overshadowed a surge in trading revenue.
Net income fell to £1.4bn, down from £1.7bn in the same period last year, the British bank said on Thursday. While this was three times higher than analysts' expectations of £464mn, it came after a £523mn hit from a trading blunder in the US and a Maltese timeshare mis-selling scandal.
Revenue rose 10 per cent to £6.5bn, compared with analysts' estimates of £5.7bn, primarily because of higher trading income in volatile markets amid the war in Ukraine.
RBC analyst Benjamin Toms said the outperformance by the investment bank was "somewhat spoilt by a lot of unhelpful noise".
Barclays' mixed set of quarterly results means that new chief executive CS Venkatakrishnan has been given a baptism of fire. Venkat, as he is known, replaced Jes Staley in November after he resigned amid a probe into his relationship with convicted sex offender Jeffrey Epstein.
While the shares rose about 2 per cent after the announcement, Barclays' stock has fallen 26 per cent so far this year and one of its largest shareholders, Capital Group, has exited a stake worth £900mn.
The British lender late last month said it would have to repay investors £450mn after mistakenly issuing an extra $15bn of financial products in the US than it had permission to. The trading error that is under investigation by the US Securities and Exchange Commission forced it to postpone a £1bn share buyback.
"Due to the ongoing discussions with the SEC regarding the potential restatement of the 2021 financial
. . . Barclays believes that it is prudent to delay the commencement of the buyback until those discussions have been concluded," it said in the statement.
An internal probe found that the error occurred because of a "material weakness in . . . the internal control environment". The bank said it was "enhancing the internal controls relating to its debt securities issuance activity" and remained committed to the business.
Finance director Anna Cross said it "isn't a question of whether we will do the buyback, but when", adding that it could come as soon as the end of the second quarter. She declined to comment on whether the SEC would impose a fine or if the staff responsible would have their pay cut.
Barclays also took a provision of £181mn to compensate customers who were improperly sold timeshare loans in Malta through a third party, after a five-year legal campaign by the victims resulted in the UK Financial Conduct Authority ordering the lender to start repaying them.
Separately, the lender said it would unwind a controversial capital arbitrage transaction through its pension scheme, which the Bank of England said was "gaming the rules" on capital earlier this month. While the BoE's warning on the issue did not single out any banks, the Financial Times reported that its strongly worded letter was aimed largely at Barclays.
As a result, the lender will take a £1.25bn hit to its core capital buffer years earlier than planned. That is equivalent, after tax, to a 30 basis point reduction from its current 15.1 per cent common equity tier 1 ratio.
Venkat said the three incidents were different and urged investors to focus on the underlying financial results, which were "exceptional compared to our competitors".
He denied there was a cultural problem at the bank. "I have always, throughout my career in Barclays and otherwise, thought that very strong risk management and culture is important, as well as a harmonious relationship with regulators," he said.
Performance at the investment bank was a bright spot in the first quarter. Strong fixed-income and equity trading -- far outperforming the average increases on Wall Street -- drove a 10 per cent increase in revenue at the division. However, debt and advisory fees from mergers and acquisitions dropped 25 per cent as equity capital market issuance collapsed.
Venkat said the surge in income was the result of "market volatility caused by geopolitical and economic challenges including the devastating war in Ukraine, and by the impact of higher interest rates in the US and UK".
Citigroup analyst Andrew Coombs said: "The revenue beat is driven by fixed income, up 32 per cent versus a 1 per cent decline at US peers . . . and equities were up 9 per cent versus a 6 per cent drop [on Wall Street] due to strong derivatives & financing."
"The magnitude of market share gains in the quarter is impressive," he added. However, "as always with an investment bank-led beat, the debate will be to that extent the market extrapolates this to 2023 and beyond".