Barclay’s net profit fell by more than 50% in the first quarter of 2017, on account of massive costs attributed to the shedding of its African business and less than stellar performance from its investment banking services. This loss comes amidst weak trading revenues as a result of diminished volatility within markets that had collapsed trading spreads. In addition, market uncertainty within the UK coupled with Theresa May’s initiatives to remove the UK from the EU official have led to a decline in the British Pound and fixed income yields.
Under the directive of Chief Executive Jes Staley, Barclays has begun to double down considerably in their investment bank and refocus its primary business on the U.K. and U.S markets, despite degrees of uncertainty within the current geopolitical climate. According to the bank, its investment banking income rose 7% in the quarter compared with a year earlier as debt trading revenues showed promising signs for financing in M&A activity and a renewed interest in IPO’s. However, according to analysts, this 7% jump in trading missed consensus expectations, falling short of fellow competitors the likes of J.P. Morgan, Goldman Sachs, and Morgan Stanley. Nonetheless, total revenue rose 16% to £5.8 billion ($7.5 billion), bolstered by strong growth at its cards business, which led to profit before tax doubling to £1.68 billion.
According to Mr. Staley, the bank was on track to close its “noncore” unit by the end of June. are now just two months from complete restructuring Barclays into a pure investment bank operating amongst fellow financial heavyweights. However, while Mr. Stanley has expressed renewed confidence in the firm’s ability to capitalize from their write down, the bank still faces hurdles looking forward. For one, Barclays must still extricate its African business from its accounts and officially detach the liability risk it incurs on Barclay’s balance sheet. As it stands, Barclays has signed a separation agreement, which is currently being approved by South African regulators; later following by taking out a £884 million impairment on the unit’s value to reflect the cost of splitting and a subsequent fall in share price as the South African economy shook.
Currently, net profits at Barclays was £190 million, compared with £433 million a year earlier, as bad loans ticked up nearly 20%, on the backs of U.S. credit-card unit. These bad debts, though cataphoric to Barclays bottom line are not isolated, however, as Goldman Sachs had reported earlier of bad debts costing them significant portions of their revenue, alongside decreased client activity in FICC.
In addition, the news of rising impairments and the African charge have led some analysts questioning whether Barclays will have to reach into the public markets to extract equity from shareholders to raise total assets and possible delivery themselves. As Chirantan Barua, an analyst at Bernstein Research noted, “U.K. macro and South African politics will dictate whether [Barclays] escapes another capital raise.” Adding to this uncertainty comes a scandal within the bank itself, as U.K. Regulators probe Mr. Stantly with regard to this effort in unmasking a whistleblower who complained about a recent hire. This, in turn, led to much dissatisfaction from prominent board members who on Thursday recommended that shareholder abstains from re-electing Mr. Stanley as CEO. When pressed on this issue, Mr. Stanley responded quite frustrating noting that he received unanimous support from the board to continue as the firm’s CEO.
Not to mention, the bank has come under a series of litigations from the U.S. Justice Department for their alleged role in the sale of toxic mortgage-backed securities and complicated derivative based credit products. The bank is also being investigated by U.S. and U.K. authorities over how it was able to raise money from Middle Eastern investors at the height of the financial crisis. Overall, the outlook for Barclay’s immediate future does not look promising and is nowhere near where Mr. Stantly projects it being.