- Profit before tax in the investment bank dropped 6 per cent to £937m compared to the second quarter
- Barclays had already flagged a £700m provision to cover the cost of payment protection insurance claims
- Jenkins grilled over disclosure that Barclays is facing a fine in the US over its conduct in electricity trading
Antony Jenkins tried to avoid dwelling on the past as he presented his first set of results as chief executive of Barclays on Wednesday. But the man brought into restore the UK bank's battered reputation in the wake of the Libor scandal, which cost his predecessor his job in July, could not entirely escape the questions that keep haunting the company.
He also faced a grilling about the disclosure that Barclays is facing another fine in the US, this time over its conduct in electricity trading. In addition, the bank disclosed that it is under investigation by the US Department of Justice and the US Securities and Exchange Commission over whether it breached anti-corruption laws.
"The last three months have been difficult ones for Barclays," he acknowledged, referring to the abrupt departure of Bob Diamond in July in the wake of the Libor manipulation scandal. He said Barclays had "removed" some people from the company following its own Libor review, without specifying if employees had been dismissed or suspended, or how many staff had been affected.
Despite some tough questions, Mr Jenkins unveiled a set of numbers that were much as expected. Barclays had already flagged a £700m provision to cover the cost of payment protection insurance claims, which helped push the bank into the red in the three months to September 30. A £1.07bn accounting charge related to the fluctuating value of its issued debt also contributed to the quarterly pre-tax loss of £47m, down from a profit of £2.42bn a year earlier.
On an adjusted basis that strips out the cost of the PPI provision and the swing in debt value, Barclays made a pre-tax profit of £1.73bn, compared with £1.34bn in the same period a year earlier. Analysts had on average expected adjusted pre-tax profit of £1.68bn.
Barclays' return on equity on an adjusted basis edged up slightly to 8.8 per cent in the nine months to September 30, up from 8.4 per cent for the same period last year. This brought the bank closer to meeting the informal profitability goal Mr Jenkins outlined in August of a return on equity of about 11 to 11.5 per cent, although including the PPI provision and the changing value of the bank's own debt, return on equity was a negative 0.5 per cent.
The numbers are a far cry from the target of 13-15 per cent by 2013 once promised by Mr Diamond, a pledge that would have relied on strong trading at the company's investment bank. But Barclays is expected to curtail the investment banking arm that Diamond built into a powerhouse following the completion of a review entitled "Project Mango". The areas most at risk include its Asian equities and M&A advisory business.
Barclays, in common with other investment banks, is under pressure to get out of businesses where it lacks scale and where regulatory changes have made it harder to earn money. This week UBS announced radical cutbacks at its own investment bank.
Barclays said it had reduced the ratio between pay and income in the investment bank to 39 per cent in the first nine months, from 46 per cent in the same period of the year before. This is slightly lower than the 43 per cent average at its largest US and European rivals including JPMorgan, Goldman Sachs, Credit Suisse and Deutsche Bank. "We are striking a balance between reducing our [pay] ratio over time and protecting the franchise," Mr Jenkins said.
While Mr Jenkins's image as a down-to-earth retail banker contrasts with that of his swashbuckling American investment banker forerunner, he insisted Barclays would remain a universal bank. "We remain absolutely committed to our universal banking model," he said.
The PPI provision weighed on the group's UK retail and business lending division, which reported a £150m loss, down from pre-tax profit of £412m in the preceding quarter.
Mr Jenkins did not definitively rule out further provisions for PPI, saying that the £2bn provision it had taken was the bank's best estimate based on the number of claims it had seen so far.
In its investment bank, Barclays fell behind its Wall Street peers in the third quarter after income in its traditionally strong fixed income trading dropped a fifth, compared with an 11 per cent average increase at its US rivals.
Profit before tax in the investment bank dropped 6 per cent to £937m compared to the second quarter when Barclays' results had outflanked the market.
"We tend to perform well when markets are weak and less well when markets are stronger," Mr Jenkins said.
The weaker results in fixed income were partially offset by an increase in equities trading revenues, which rose by a quarter.
However others suggested that investors are more concerned by the potential impact of Sir John Vickers' reforms, which will ringfence banks' retail businesses from their investment banking activities, rather than the performance of any particular bank.
"It [RoE] is edging in the right direction, but as an investor what do you do? There's a complete lack of visibility," said Gary Greenwood, analyst at Shore Capital.