Shares in Barclays (BARC) drift 1.5% lower to 164p on Thursday after the release of first quarter earnings which missed analyst expectations after a drop in investment banking revenues.

Group profits before tax and charges for the three months to 31 March totaled £1.54bn. That compares to forecasts of £1.57bn that were already expected to be far lower than the £1.7bn reported for the equivalent period last year.

The weak performance overall, but particularly from the investment banking arm, will provide additional ammunition for activist investor Edward Bramson. He has for months called for Barclays to shrink the investment banking arm to improve shareholder returns.

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CIB DROPS THE BALL AGAIN

Barclays International is the unit that includes the Corporate & Investment Bank (CIB). This part of the business saw profits fall 20% to £1.14bn, a decline that might have been larger had the US dollar not gained 6% against the pound during the quarter.

Profits at the CIB itself were down 30% to £827m as turnover was negatively impacted by reduced client activity, lower volatility in markets and a drop in fees from corporate deals.

The first quarter of the year has been tough for investment banks across the board with US giants JPMorgan and Goldman Sachs both recording weak performances.

The drop in client activity which Barclays experienced combined with a lack of UK initial public offerings (IPOs) and corporate deal-making doesn't bode well for earnings at the smaller broking firms, many of whom are struggling to generate income from their traditional research business.

On a positive note for Barclays, profits in the Consumer, Cards & Payments division – which also sits within the international unit – were up an impressive 22% to £291m thanks to strong growth in the US.

UK BANK REASSURINGLY STEADY

Also helping to offset the weak CIB performance was the UK banking business which registered a 1% increase in profits to £600m.

Consumer loans and deposits both showed a small gain while business deposits showed a healthy 8% improvement on last year.

Operating costs were down by 1% and there was a 5% fall in provisions for bad loans which the bank puts down to ‘a reduced risk appetite and continued benign economic environment’.

This is quite a change in tone from the fourth quarter when it took a £150m provision for the potentially negative impact of continued uncertainty over Brexit.

The mortgage market is still highly competitive and the squeeze on lending margins contributed to a small narrowing of the overall UK net interest margin from 3.2% to 3.18%.

However, PPI charges are tailing off as the August deadline approaches and the bank is redeeming £3bn of 14% bonds early which will result in lower funding costs and ‘an ongoing earnings benefit’ going forward.

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Issue Date: 25 Apr 2019