Non-core activities still dragging the chain at Barclays

Barclays reported a dip in profit in its first quarter on Wednesday, with group profit before tax at £793m in the three months to 31 March, down from £1.06bn a year earlier.

The FTSE 100 banking group said this reflected an 18% increase in core profit before tax to £1.6bn, though that was more than offset by an increased non-core loss before tax of £815m.

Adjusted PBT, which adds back £109m of negative fair value movements on own credit, fell 44% to £902m compared to the prior year, but was 7% ahead of consensus forecasts.

This was due to total income down 11% but 3% above consensus estimates at £5.04bn, while impairments were 11% lower than expectations, only partly offset by higher than anticipated costs.

“We promised to accelerate the pace of progress in reducing non-core so that our group performance converges with our core performance within a reasonable timeframe,” said chief executive James Staley.

“Since 1 January, we have made progress in exiting from Investment Banking in nine countries, completed the sale of our Portuguese retail, wealth and SME banking businesses, and are progressing other announced sales, including the Italian branch network, the Index business and our Asian wealth business, towards completion in 2016.”

The group’s return on average tangible shareholder equity was 3.8%, shrinking from 4%, though core return on tangible equity was up to 9.9% from 7.1%.

Group attributable profit decreased 7% to £433m, resulting in a basic earnings per share of 2.7p, down from 2.9p. Core attributable profit increased 53% to £950m, resulting in a basic earnings per share contribution of 5.8p.

In the UK division, Barclays delivered a return on tangible equity of 20.5%, down from24% last year. Underlying profit before tax fell 2% to £704m as lower income was partially offset by improved impairment, with underlying total operating expenses remaining broadly in line.

Net interest margins in the UK were relatively stable, rising to 3.62% from 3.6%.

“Core RoTE is 9.9%, within which Barclays UK posted an impressive 20.5% return on tangible equity. We can see clear growth opportunities, such as in our Consumer, Cards and Payments business, in which we want to continue to invest,” Staley explained.

“The performance of our Corporate and Investment Bank was relatively resilient in a tough quarter, but there is more we must do to improve returns, and we are focused on management actions to do so.”

Staley said the group was continuing to target cost reductions and is on track to meet 2016 guidance for the Core business of £12.8bn, with a longer-term target of a group cost to income ratio under 60%.

Barclays’ common equity tier 1 ratio declined to 11.3% during the quarter, from 11.4%, with the board blaming increased regulatory deductions and the acquisition of intangibles in relation to the US JetBlue credit card portfolio.

The leveraged ratio decreased marginally to 4.3%, from 4.5%, which was put down to seasonality. Group risk-weighted assets increased £5bn in the quarter to £363bn, and leverage exposure increased £54bn to £1.08bn.

“The performance of the Core today shows the potential power of the group once it is freed from the drag of Non-Core,” Staley explained.

Barclays’ net tangible asset value per share increased during the period to 286p, from 275p, driven by profit generation and favourable reserve movements.