Barclays’ investment bank posted strong results for the third quarter but the shine was taken off by a £1.4bn charge related to the payment protection insurance scandal, which dragged the group to an overall net loss.
Pre-tax profits at the corporate and investment bank jumped to £882m, a 77 per cent rise year-on-year per cent thanks to an increase in the fees Barclays earns by working on corporate transactions like initial public offerings and acquisitions. Banking fees were one-third higher than the same quarter of last year at £688m.
The bank’s traders also posted a solid performance, with revenues from fixed-income and equities trading up by 19 per cent and 5 per cent, respectively, which compared favourably with many of Barclays’ larger US peers.
The strong performance from the investment bank could put further pressure on activist investor Ed Bramson, who has amassed a large stake in Barclays and called for it to scale back its trading operation.
However, the bank took a £1.4bn charge to cover the cost of compensating consumers that were mis-sold payment protection insurance, taking total provisions related to the scandal to £11bn.
The charge dragged the group to a net loss of £292m. Its return on tangible equity for the quarter was minus 2.4 per cent.
Revenues of £5.5bn were 8 per cent ahead of the same quarter last year and about 4 per cent higher than the consensus analyst forecast. Net profits excluding litigation and conduct were about 21 per cent higher than analysts had expected.
Excluding the PPI charge and other litigation expenses, the bank posted a ROTE of 10.2 per cent, and Jes Staley, chief executive, said the bank was “on track” to achieve its annual target of a ROTE of more than 9 per cent in 2019.
However, he warned that next year’s target for a ROTE of greater than 10 per cent was “unquestionably more challenging now than it appeared a year ago, in particular given the uncertainty around the UK economy and the interest rate environment.”