Barclays profit falls on hit from debt-sale mistake, deal-making slump
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3 min read . Updated: 28 Apr 2022, 07:08 PM IST - British lender delays a share-buyback program until it sorts out a structured note mishap with regulators
Barclays PLC delayed a share buyback until it sorted out a debt-sale flub with regulators, a mistake that drove down its net profit last quarter.
The London-based lender said Thursday it earned £1.4 billion, equivalent to $1.8 billion, in the three months to the end of March, down from £1.7 billion in the same period last year. Analysts expected the bank to report a £1.55 billion profit for the quarter, according to FactSet. The bank’s compiled forecasts projected £1.32 billion. Revenue increased 10% to £6.5 billion.
Shares rose 2.7%. Barclays has been trading close to a one-year low and has fallen 22% this year, compared with a 1.5% rise in the U.K.’s benchmark FTSE 100 stock index.
Barclays Chief Executive C.S. Venkatakrishnan ran into a sticky situation early in his tenure after the bank said last month it was facing a £450 million loss, net of tax, and a regulatory investigation. Its U.S. division, in what amounted to a clerical error, accidentally sold more structured notes than was allowed by the Securities and Exchange Commission for about a year. It said it expects to buy the notes back at a loss. Mr. Venkatakrishnan was previously the bank’s chief risk officer.
“This situation was entirely avoidable and I’m deeply disappointed that it occurred," said Mr. Venkatakrishnan on Thursday. “To date, we have not found any evidence of intentional misconduct. The fact that this overissuance occurred reflects a weakness in our control environment."
Barclays said the estimated loss was now around £500 million and it has a provision of £540 million related to this matter. The bank reported a 14% rise in operating expenses largely due to the litigation and conduct charges.
The bank said a planned £1 billion share buyback program would be delayed until discussions with the SEC about the potential restatement of 2021 financials related to the debt-sale mishap are concluded. Group Finance Director Anna Cross said at least one statement will have to be refiled.
“This is not a question of whether we will be proceeding with this buyback but when," Mr. Venkatakrishnan said. “We expect to be in a position to do so toward the end of the second quarter."
The blunder is an inauspicious start for Mr. Venkatakrishnan, who took over from former CEO Jes Staley, who resigned last November over how he characterized his relationship with the convicted sex offender and financier Jeffrey Epstein.
“The cloud that hangs over Barclays persists. A mammoth blunder relating to the overselling of U.S. securities means regulators are sniffing around, and the issue raises questions around governance and control," said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.
Barclays’s overall results echo the performance of major U.S. banks, which also reported sizable drops in profitability in the first quarter. Morgan Stanley and Citigroup’s net incomes fell 11% and 46%, respectively.
Headwinds include the highest inflation in decades and soaring commodity prices driven by the war in Ukraine which catalyzed turbulence in markets and a decline in deal making. The U.K. is facing a particularly acute cost of living crisis, with British households expected to have the biggest fall in real incomes in 30 years.
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Profit at Barclays’s corporate and investment bank rose 4% to £1.3 billion during the first quarter, with a decline in investment-banking fees but a rise in activity in global markets as the bank supported its clients through the period of volatility. Profit at the bank’s U.K. unit advanced by a third, reaching £396 million.
This story has been published from a wire agency feed without modifications to the text