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LONDON (Alliance News) - Barclays PLC Thursday said it has set aside GBP500 million in light of regulators' investigations into alleged foreign exchange manipulation, as the British lender beat analyst forecasts with the level of its rise in third-quarter adjusted pretax profit.
The provision in relation to authorities' investigations into the foreign exchange market makes Barclays the first British bank to take such action, following similar moves by US and European rivals. The charge reinforces the need for Chief Executive Antony Jenkins to continue in trying to clean up Barclays' reputation, following fines over the Libor-rigging scandal, as well as a number of other legal and regulatory matters.
Barclays also announced an extra GBP170 million provision for the payment of payment protection insurance claims, but this was offset by a GBP160 million release of provision for interest rate hedging redress. The bank booked a GBP364 million loss on the disposal of its Spanish business, but a GBP461 million gain on "greater certainty around the recoverability of assets not yet received" from the acquisition of Lehman Brothers' US assets in 2008, following a favourable ruling during the quarter from the US Court of Appeals for the Second Circuit.
In a statement, Barclays said it made a GBP1.22 billion pretax profit in the third quarter of 2014, compared with GBP1.17 billion in the corresponding quarter last year. On an adjusted basis, which strips out items such as the foreign exchange provision, own credit, and gains and losses on acquisitions and disposals, Barclays' third-quarter pretax profit increased to GBP1.59 billion from GBP1.39 billion.
According to Barclays, consensus estimates of 16 analysts had forecast a GBP1.21 billion adjusted pretax profit for the third quarter.
Barclays reported a GBP3.72 billion pretax profit in the first nine months of the year, compared with GBP2.85 billion in the corresponding period last year. On an adjusted basis, Barclays said pretax profit in the first nine months increased to GBP4.94 billion from GBP4.72 billion.
Third-quarter results were driven by improved numbers at Barclaycard and Barclays' personal and corporate banking division, but its Africa banking division saw a fall in pretax profit. And Barclays reported an even bigger drop in pretax profit at its investment bank, which is dealing with a big restructuring detailed by Jenkins in May and a clash with authorities in New York over its dark pool equity trading venue.
The investment bank made a GBP284 million pretax profit in the third quarter, down from GBP567 million in the second quarter and from GBP465 million in the third quarter of 2013.
In a conference call with journalists, Finance Director Tushar Morzaria said the dark pool allegations have had an impact on the investment bank but noted that there were other drivers behind the division's results.
According to Barclays' statement, third-quarter investment bank income was hit by decreased financial advisory and debt underwriting fee income, though equity underwriting fee income remained broadly in line. Markets income decreased 13% to GBP1.12 billion, with credit and equities showing double-digit percentage decreases. However, macro - encompassing foreign exchange and interest rate trading - increased 3% to GBP470 million on a stronger performance in currencies due to higher volatility, partially offset by decreased client activity in rates.
"Our core businesses - the future of Barclays - have delivered a return on equity of 10.5%, driven by our powerhouse personal and corporate banking business and continued strong growth in Barclaycard," Chief Executive Jenkins said in a statement.
Jenkins said the strength of Barclays' Africa banking franchise is "clearly visible" and blamed the fall in pretax profit within the division on currency movement, namely the strength of sterling against South Africa's rand. However, he said the investment bank's performance in the quarter was disappointing, but that his move to reduce the group's reliance on the division helped to offset that.
The CEO also said that Barclays has strengthened its capital and leverage positions, reporting that its fully loaded common equity tier 1 ratio increased to 10.2% at the end of September from 9.9% at the end of June. Its estimated Basel Committee on Banking Supervision leverage ratio increased to 3.5% from 3.4% over the same period.
Morzaria told journalists that Barclays has a "very sharp focus" on leverage, and expects the bank to further improve its position.
The leverage ratio is a simple unweighted ratio of a bank?s equity to a measure of its total un-risk-weighted exposures, and is designed to guard against weaknesses in banks' ability to model risk. Although the Basel Committee on Banking Supervision has set a provisional leverage ratio of 3%, banks in the UK could have tougher requirements imposed on them on Friday, when the Financial Policy Committee will publish the outcome of a consultation on the matter.
"In aggregate, this is a good performance from the group, our strategy is working, and we expect to see continued progress as we go forward," Jenkins said.
Barclays will pay a third interim dividend of 1.0 pence, raising the total payout for the year to 3.0p, unchanged on the same period a year before.
Barclays sharers were up 0.5% at 221.65 pence in early trading on Thursday, the third leading gainer in the FTSE 100.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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