Barclays has announced an ‘encouraging’ start to the year. An interesting line, given that its first-quarter results showed a statutory pre-tax loss of £475m, compared with profits of £1.6bn in the same quarter last year. But the bank reckons this is due to an ‘own credit reversal’ accounting adjustment and the creation of a £300m settlement fund for Payment Protection Insurance (PPI) claims. If these exceptional factors are stripped out, the bank’s balance sheet is actually in the black, with underlying profits of £2.45bn, £850m more than the same quarter in 2011.
CEO Bob Diamond needs some good news to report. Barclays’ annual investors’ meeting is being held tomorrow and his £17.7m pay packet will be under intense scrutiny. He, alongside Barclays’ management, are hoping that the whiff of profit will prevent a shareholder backlash as seen at Citigroup earlier this month over executive pay.
Elsewhere in banking, HSBC has announced there will be 2200 redundancies in the UK this year, mostly in its investment advice arm and back office functions. Bad news for the 50,000 people it employs in the UK. But its not just the Brits feeling the pinch, these cuts are part of HSBC’s plan to downsize by about 30,000 employees across the globe (about 10% of all staff).
What has forced HSBC to get the scissors out? Well, new regulations soon to take effect in the UK will make it expensive for banks to offer financial advice to customers, as they will no longer be able to charge commission. HSBC has already closed its financial advice business in the UK (the first UK bank to do so) and cut 7,000 jobs globally last year.
CEO Stuart Gulliver is persisting with his job-cutting strategy to keep profits high for nervy shareholders, anxious about the new regulation. And he’s doing a decent job so far: profits before tax were $21.9bn in 2011, up $19bn from 2010.
Finally, Deutsche Bank has had a shoddy morning, announcing an uncomfortable €680m drop in profits for the first quarter to €1.38bn (£1.13bn) from €2.06bn a year earlier. The bank puts the poor performance down to stilted investment banking activity in the eurozone, which has been seen as a danger area by many investors while the financial crisis drags on.
What with the UK back in recession, shareholder revolts, and the eurozone looking as precarious as ever, there doesn’t seem to be light at the end of the tunnel for the banking sector. But Barclays’ rise in profits is a sure sign that we’re definitely not in the dire straits of 2008. We hope…