Barclays Trading Arm Provides Lifeline In A Pandemic – Update 2

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By Simon Clark 

LONDON – Barclays PLC posted a profit in 2020, as strong securities trading offset a poor performance in the UK, where the bank expects accumulated savings to give the economy a boost then as the coronavirus pandemic abates.

The London-based bank’s net profit fell 38% from a year earlier to £ 1.53 billion, or $ 2.12 billion. Barclays corporate and investment banking profit rose 29% to GBP 2.55 billion.

Barclays shares traded 2% less on earnings. The bank has announced plans to pay a dividend for 2020 and buy back up to £ 700million of shares. The proposed dividend of one pence per share was lower than some investors expected.

The findings support the strategy of Barclays chief executive Jes Staley, who has pushed back calls from activist investor Edward Bramson to downsize the investment bank. Mr Bramson’s Sherborne Investors claims to own 5.8% of Barclays. European lenders with large securities trading units, such as Deutsche Bank AG and BNP Paribas SA, have weathered the pandemic better.

Barclays is the UK’s second-largest lender by assets after HSBC Holdings PLC, operating a large national retail and commercial bank as well as a transatlantic investment bank that competes with Goldman Sachs Group Inc. and Morgan Stanley.

Investment and consumer banks “act differently in an economic cycle,” Staley said on a media call Thursday. “This has allowed Barclays to be profitable every quarter of the year.”

Revenues from Barclays’ market unit, which trades fixed income, stocks and derivatives, rose 45% to £ 7.61 billion. Its cards and payments unit lost £ 388 million in 2020 due to write-downs and lower economic activity. Barclays stock has risen 2% this year after falling 18% in 2020.

British banks have been hit hard by the economic impact of Covid-19. The UK experienced the strongest economic contraction among the world’s advanced economies last year. Prospects are improving with the roll-out of a nationwide vaccination program, but uncertainty persists, in part due to additional challenges due to the country’s exit from the European Union.

Consumers have reduced their credit card debt and increased their savings due to fear of the pandemic, Mr Staley said.

“The deposits went through the roof,” he said. “Once people get their confidence back they are going to spend it and that is, I think, what we think will happen and generate a pretty strong economic recovery in the second half of this year.”

Nonetheless, the pandemic’s toll on borrowers led Barclays to set aside £ 492m in the last three months of the year to cover bad debts, bringing the year’s total to £ 4.84bn, more than double the amount for 2019.

Despite the decline in profits for the year, the bank paid 6% more in bonuses in 2020 than the year before, for a total of £ 1.58 billion. Mr Staley said the bonuses were appropriate compensation for the company’s bankers and traders. “Profitability has been driven by our wholesale business and we need to respond to it,” he said.

Wall Street banks have to walk a fine line on bonuses, weighing in on very good performance in a year of widespread economic turmoil.

As CEO of the UK’s largest investment bank, Mr Staley said he was not concerned that Britain’s departure from the EU would harm London’s financial sector. So far this year, Amsterdam has surpassed London in terms of the average value of shares traded per day.

“I would not overreact to trading in shares from Amsterdam,” Staley said. “The main pool of capital that is managed from London today is virtually unchanged from what it was six months or a year ago. I don’t think you have an exodus that should make people stand up and say ‘Oh my God, does London have a problem? ‘”

Mr Staley is under surveillance for his professional relationship with a former client who died from his time working at JPMorgan Chase & Co., convicted sex offender Jeffrey Epstein. British financial regulators said last year they were investigating the relationship. Mr Staley declined to comment on the investigation Thursday. The UK’s Financial Conduct Authority declined to comment.

In October Mr Staley, 64, said he intended to stay at Barclays for “another two years”.

Write to Simon Clark at [email protected]

 

(END) Dow Jones News Wire

February 18, 2021 6:02 am ET (11:02 am GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.

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