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Barclays CEO defends under-fire investment bank ahead of activist showdown

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK

Jes Staley CEO of Barclays’ (BARC.L) has defended the bank’s under-fire investment banking division, saying he will “continue with the strategy we set out three years ago.”

Barclays’ first quarter earnings on Thursday showed a tough quarter for its investment bank. Income fell by 11% to £2.5bn ($3.2bn) and pre-tax profit fell by 29% to £846m.

Barclays is currently battling activist investor Edward Bramson, who has built up a £1bn stake in the bank and wants it to cut back on investment banking activities to boost its share price.

Staley hit back on Thursday, following the publication of the bank’s results, saying the investment bank performed well despite “not normal” market conditions.

“This is the sixth quarter in a row in the markets business that we’ve gained market share against the US banks,” Staley told Yahoo Finance UK. “Those who argue that we’re structurally disadvantaged versus the US banks — if our structural disadvantage leads to 6 quarters of growth, maybe we should keep it.”

He added that the markets business within the investment bank was more profitable than the overall investment bank.

“As we seek to improve the overall profitability of the business, if I’ve got a markets business which is gaining market share and generating higher than the bank’s overall level of profitability — that’s a good thing,” Staley said.

“We like the progress we’re making in the corporate and investment bank, we like the profitability of our markets business in the first quarter, and we’re going to continue with the strategy we set out three years ago.”

‘Messy’ and ‘poor’ results

The sign on a branch of Barclays bank in London. Photo: AP Photo/Kirsty Wigglesworth, File

Staley is set for a showdown with Bramson at Barclays’ AGM next week when shareholders will vote on whether to elect Bramson to the bank’s board.

Bramson, who owns 5.5% of Barclays through his company Sherborne Investors, is calling for the board seat in order to push through changes at the investment bank.

Analysts said Thursday’s results weakened Staley’s hand ahead of the vote on May 2.

“Barclays is keen to point to a growing share of global banking fees,” Nicholas Hyett, an equity analyst at Hargreaves Lansdown, said. “But despite a better than expected result in fixed income trading, today’s numbers will do little to take the pressure from activist Edward Bramson off the board.”

“The readings from the investment bank don’t look too good for CEO Jes Staley,” said Neil Wilson, the chief market analyst at Markets.com.

Barclays has urged shareholders to reject Bramson’s motion, saying he has a “a poor understanding” of the bank and his plan is “based on multiple factual errors.”

Bramson’s Sherborne Investors wrote to Barclays shareholders earlier this month and said: “An alternative voice on the board would seem to be healthy for the company and its shareholders.”

Barclays’ finance director Tushar Morzaria said on Thursday the bank didn’t know if Bramson or any Sherborne representatives would appear or speak at next week’s AGM.

‘Subdued’ markets

Across Barclays, total income was down by 2% to £5.2bn in the first quarter. Pre-tax profit was down by 10% to £1.5bn. Attributable profit was just over £1bn and return on tangible equity across the bank was 9.6%.

Earnings per share was 6.3p, which was higher than consensus forecasts but below the 7.1p reported in the first quarter of 2018.

Hyett said the investment bank’s performance was “poor” and the overall bank’s results were “messy.”

Barclays shares were down 1.5% in early trade.

The start of 2019 has continued to be tough for investment banks after a brutal end to 2018.

Data provider Refinitiv estimated that investment banking revenues across Europe fell by 25% in the first three months of the year. Credit Suisse CEO Tidjane Thiam called it a “challenging” period on Wednesday, despite his bank posting better-than-expected numbers. UBS reported a 27% fall in net profits on Thursday.

CEO Jes Staley told media: “Like the other banks, M&A and capital markets activity in the first quarter globally, but particularly in the UK & Europe was quite subdued.”

Staley said that the US government shut down had led to reduced IPO revenues in the first quarter as companies could file paperwork to go public. He added that Brexit had also hit capital markets in the UK.