Barclays reported a big drop in its provisions for bad loans in the third quarter as the initial economic shock from coronavirus subsided, while revenue at its trading arm continued to surge in turbulent markets.

The bank took £608m of credit impairment charges in the quarter. Although that was higher than the same period last year, it was well below the £3.7bn set aside in the first half of 2020 and less than the £1bn that analysts had forecast.

On Friday, chief executive Jes Staley said it had been a “historically challenging year” and warned that “income headwinds in the UK are expected to persist into 2021 including the low interest rate environment”.

Quarterly net profit rose to £611m from a loss of £292m last year, when there were £1.6bn of litigation and misconduct charges, largely related to the payment protection insurance scandal. Analysts had estimated Barclays’ net profit would be £201m. Revenue fell 6 per cent to £5.2bn, beating expectations of £4.8bn.

The majority of charges for potential loan losses came in the consumer and credit card businesses in the UK and the US. However, the bank did return to profit in that area in the third quarter as consumer spending recovered.

For the third quarter in a row, the Covid-19-related pain in the retail and commercial units was offset by big jumps in trading income, as the investment bank once again benefited from heightened client activity in choppy markets.

Fixed-income revenue surged 23 per cent — similar to the increases recorded by Wall Street rivals such as JPMorgan Chase, Goldman Sachs and Morgan Stanley last week.

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Elsewhere in the investment bank, equity trading revenue rose even further — by 40 per cent, beating the average 15 per cent rise from US banks — but fees from M&A advisory plunged as few acquisitions were sealed during global lockdowns.

Overall pre-tax profits at the investment bank rose 13 per cent to £1bn. UBS reported a similarly buoyant performance at its securities unit earlier in the week.

The performance will bolster Mr Staley’s often criticised strategy to maintain Barclays’ trading arm, which he has long argued is a necessary counterbalance to its traditional British retail and credit card businesses that are more vulnerable in recessions.

“We have a resilient and diversified business model which means we remain profitable as we weather this crisis, with strong income performance in our [investment bank] more than offsetting headwinds in our consumer businesses,” Mr Staley said.

The investment bank has been subject to a multiyear attack from activist investor Edward Bramson, who has led several unsuccessful campaigns to shrink the division and unseat the chief executive.

Via Financial Times