LONDON (Alliance News) - Barclays PLC on Wednesday reported a 6.7% fall in first-half adjusted pretax profit as adverse currency movements and a fall in the profitability of its investment bank were only partially offset by improvements in personal and corporate banking, Barclaycard and its 'non-core' division.
In a statement, Barclays said it made a GBP3.35 billion adjusted pretax profit in the first six months of 2014, down from a GBP3.59 billion adjusted pretax profit in the corresponding period last year, though the result still beat the GBP2.96 billion analyst consensus forecast provided by the bank.
Barclays shares led FTSE 100 gainers following the statement Wednesday morning, quoted up 4.7% at 229.45 pence.
Income net of insurance claims fell by 12% to GBP13.3 billion, partly offset by a fall in impairment charges to GBP1.09 billion from GBP1.63 billion, which resulted in an 8.9% fall in net operating income. Operating expenses fell to GBP8.88 billion from GBP9.78 billion, as the bank reported its lowest headcount level since 2007 in its efforts to reduce costs by cutting tens of thousands of jobs.
The adjusted figures, which strip out items including own credit, costs of provisions for mis-sold products, and goodwill impairment, were presented alongside statutory results showing a 49% increase in pretax profit to GBP2.50 billion from GBP1.68 billion.
Chief Executive Antony Jenkins said Barclays is making "encouraging progress" in executing the plan he unveiled in May to restructure the bank into four core businesses - personal and corporate banking, Barclaycard, Africa Banking, and the investment bank - as well as a 'non-core' entity which includes its European retail business, certain investment bank portfolio assets, derivatives, and other assets that don't fit with Barclays' strategy.
"Profits before tax in personal and corporate banking and Barclaycard were up 23% and 24% respectively. Africa Banking also delivered a good performance with profits increasing 13% on a constant currency basis. Performance in the investment bank was impacted by the repositioning underway as well as difficult trading conditions in the quarter, but it is where we expected it to be at this point. The strong performance of our [investment] banking division is demonstrating the attractiveness of our new origination-led strategy to our clients," Jenkins said in a statement.
"I am pleased with the very good start made in managing down assets in our new non-core unit, with risk-weighted assets reducing by GBP22.0 billion in the first half. The return on equity drag has also dropped from 7.3% to 4.5% in the quarter, placing us well on track to meet our 3% 2016 target," Jenkins added.
At the heart of the restructuring were measures to shrink down its investment bank, which saw an 18% reduction in income due to a decrease in markets amid low volatility levels, with the aim of reducing the unit's influence on Barclays' overall earnings and capital. Under the restructuring, Barclays opted to turn the unit into an origination-led business offering banking, equities, credit and certain macro products while scaling back in fixed income, currencies and commodities. The unit is also focusing on the US and the UK while scaling back in Asia.
However, Barclays has recently had to deal with allegations made by the New York Attorney General in late June that it ran its investment bank's dark pool share trading platform, LX, to the benefit of high-frequency traders at the expense of its other clients. Barclays has said that it does not believe the lawsuit to be justified and is seeking to have it dismissed.
But unwanted headlines of the past also made a return in Barclays' earnings, with the bank setting aside a further GBP900.0 million in provisions for payment protection insurance redress due to a "lower than expected decline" in claims. The new provision means that Barclays has now set aside GBP4.85 billion to provide compensation to customers who were mis-sold the insurance product and the associated processing costs.
And Barclays' legal disclosures included another blow to Jenkins, who has been trying to restore the bank's reputation after several years of legal troubles, fines and an assortment of legal issues, with the news that the US Department of Justice now has until June 27, 2015 to give it the time to assess whether any of the bank's trading activities in the foreign exchange market during the two year period from June 26, 2012 constituted the commission of a US crime.
Barclays had entered a non-prosecution agreement with the DOJ in 2012 in the wake of the Libor scandal, for which it was fined GBP290.0 million by US and UK regulators. The original two-year period has expired, but the new arrangement means that Barclays must disclose non-privileged information in response to inquiries.
Barclays maintained its interim dividend at 2.0 pence per share.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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