Barclays cashes in on investment banking as profits leap to £1.8bn

Soaring profits used to be a good thing for banks. Now they're just a magnet for criticism and controversy...

Last Updated: 31 Aug 2010

Barclays posted some pretty impressive results today: pre-tax profits soared by nearly 50% in the first three months of 2010, as its loan impairment rate dropped sharply and its investment bankers continued to make out like bandits. In the old days, that would probably have meant a bump in the share price and back-slaps all round. But not now: its share price is down nearly 5%, while these fat profits – announced just before a General Election – are likely to get politicians even more excited about bank-busting legislation, higher taxes, and bonus curbs...

Barclays said profits jumped to £1.8bn in the first quarter, 47% higher than in 2009. The good news was that it’s writing off a lot less money on dodgy debts than it was this time last year: its loan impairment rate was down by more than a third, to £1.5bn – which would seem to indicate that the overall climate is getting healthier (unless this is just the eye of the storm, perhaps). What’s more, a huge chunk of these profits came from its investment banking division Barclays Capital, where profits up about 62% - proof, according to chairman Marcus Agius, of the value of Barclays’ universal model. At a time when the Tories and the Lib Dems are keen to split up retail and investment banking, that’s a cause that needs all the help it can get.

Although these numbers may sound good, they didn’t impress the market: Barclays’ shares promptly fell by (a faintly ridiculous) 4.5%, amid disappointment that the numbers weren’t even better. Retail banking profits were up, but only by a relatively modest 20% - and since Q1 is always a bumper one for the investment bankers, merely hitting forecasts tends to be seen as a disappointment.

But that’s not Barclays’ only problem. There’s also the widespread feeling that it’s not right for banks to be raking in huge sums at the moment; so the fact that it’s chalking up about £2m profit per day will only encourage the politicians to pursue punitive measures against them. Same goes for that hoary old chestnut of banking bonuses. On a day when the chairman of RBS told the BBC that bankers’ pay was ‘astonishingly high’, and HSBC was reported to be facing an investor revolt over CEO Michael Geoghegan’s relocation package, it’s not great timing for Barclays to be admitting that it’s already set aside a £1.4bn bonus pot for its (relatively small number of) investment bankers.

Clearly the banks are facing easier conditions than they were a year ago. But that’s partly because the sector has been propped up with public money. And at a time when they remain the target of much public and political ire, announcing strong profits like these actually just makes their lives more difficult.

In today's bulletin:

Leaders ignore 30% tax hike predictions
Barclays cashes in on investment banking as profits leap to £1.8bn
Tesco and Sky off the hook with regulators - for now
Mervyn King: Election win will be poisoned chalice
Marks & Spencer has brief encounter with Which?

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