High street bank Barclays saw ‘substantial’ losses in the first three months of the year after facing a £1.4 billion charge in the US and further payment protection insurance (PPI) payouts.
The group reported a pre-tax loss of £236 million for the three months to March 31, having reported profits of £1.682 billion in the same period last year.
Profits were hit by a £1.4 billion settlement the bank was ordered to pay by the US Department of Justice (DOJ) earlier this month, related to the sale of mortgage-backed securities in the lead-up to the financial crisis.
Stripped of litigation and conduct charges, Barclays said its profit was up 1 per cent to £1.725 billion.
Profits were hit by a £1.4 billion settlement the bank was ordered to pay by the US Department of Justice after its role in the selling of mortgage-backed securities before 2007
Chief executive Jes Staley said: ‘While the penalty was substantial, this settlement represents a major milestone for Barclays, putting behind us a significant, decade-old legacy matter.’
A higher number of PPI complaints also pushed the cost of covering the charges past £400 million.
While the charges affected Barclays’ CET1 levels – referring to the capital cushion that underpins a bank’s loans – Mr Staley said he was confident in the lender’s position.
‘This has been a significant quarter for Barclays, one in which we have shown that our new operating model and our portfolio of diversified, profitable businesses are capable of producing improved returns for shareholders.’
The PPI charges dragged on returns from its UK business, which suffered a 17 per cent fall in pre-tax profits to £581 million.
Barclays UK also saw a three per cent drop in income and a five per cent increase in operating costs due to increased investment, as well as a 13 per cent rise in credit impairment charges.
Its international business, meanwhile, saw pre-tax profits rise four per cent to £1.4 billion and operating expenses drop five per cent, though income fell eight per cent to £3.8 billion.
Its share price suffered in early trading and fell more than two per cent before recovering the ground lost and swinging back into the green by mid-morning.
Barclays said currency movements were partly to blame, given the US dollar’s depreciation against the stronger pound.
The bank’s total income for the first quarter fell eight per cent to £5.3 billion from £5.8 billion last year.
Richard Hunter, head of markets at interactive investor, said the ‘indelible stain’ left by litigation and conduct overshadowed any progress the bank had made.
He said: ‘The bank itself highlights that its restructuring is complete and that legacy issues, most notably the fine relating to US residential mortgage-back securities, can now be viewed in the rear view mirror.’
The bank’s results failed to mention boss Jes Staley’s (pictured) warning notices from regulators which alleged he tried to identify whistelblowers
Hunter added: ‘Operationally the investment bank had a strong start to the year, with pre-tax profit sharply higher and impairment charges significantly lower.
‘Elsewhere, the increase in the dividend shows an element of confidence in the bank’s prospects, whilst also making the projected yield a respectable three per cent, whilst the overnight announcement of the tie-up with PayPal is an interesting development.’
Laith Khalaf, a senior analyst at stockbroker Hargreaves Lansdown, suggested all was not lost for the high street bank.
‘There’s a lot not to like about Barclays latest results, although many of the factors hampering the bank are one-off items which don’t speak for the future prospects of the business,’ he said.
‘Stripping out these setbacks, performance has been a disappointment rather than a disaster, which the headline figures by themselves might suggest,’ Khalaf added.
The PPI charges dragged on returns from Barclays UK business, which suffered a 17 per cent fall in pre-tax profits to £581 million
The lender did not provide further details surrounding a fine looming over its chief executive after regulators found he had allegedly breached conduct rules by attempting to identify a whistleblower in 2016.
Warning notices issued by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) earlier this month allege that Mr Staley’s action’s violated rules that require an individual ‘to act with due skill, care and diligence’.
The bank stressed that regulators are not alleging that the Barclays boss acted with a lack of integrity or that he was not fit to continue in his role as chief executive.
The size of the proposed penalty has not been disclosed, but Mr Staley was given 28 days to respond to the warning notice.