It’s tough out there in banking right now, what with the world economy slowing as China falters and the US debates whether to finally raise interest rates. Just today Deutsche Bank announced a €6bn (£4.3bn) quarterly loss and 15,000 job cuts.
Back in Britain, Barclays also unveiled a set of disappointing results, a day after it confirmed JPMorgan veteran Jes Staley would be taking over the top job on December 1. Third quarter pre-tax profits fell 30% to £860m as it was hit with yet more charges for past scandals and struggled to get rid of assets in its ‘non-core’ business.
That wasn’t down to yet more PPI charges, as with Lloyds yesterday, but a £270m provision for settling a US mortgage products lawsuit and £290m to compensate clients given bad rates on foreign exchange deals between 2005 and 2012 (the latter discovered by its own internal investigations for once, as opposed to sleuthing by journalists or regulators).
Meanwhile, it ditched targets for return on equity and cost-cutting, blaming £1.1bn of costs from restructuring, including having to ‘ringfence’ the UK retail bank, and the 8% extra tax on bank profits George Osborne announced in the post-election Budget (to replace, lest we not forget, the much-hated ‘bank levy’).
It also spectacularly missed its cost-income ratio target of the mid-50s or lower, recording 69% in the third quarter. Total revenues slipped from £6.4bn to £6.1bn. No wonder, then, that shares fell more than 5% to 240p in mid-morning trading, having risen around 14% in the last 12 months.
But it wasn’t all gloomy – in fact Barclays’ four core businesses are doing respectably, with profits creeping up 1% to £1.76bn. Only the Africa unit’s profits fell in the quarter, down 8%, while the underperforming investment bank’s profits rose 11.6% to £317m.
Many thought Staley, as the former head of JPMorgan’s i-bank, would bring the investment bank roaring back. Instead, in a memo to staff yesterday, he pledged to continue shrinking it to ‘a less capital intensive model’.
The expectation now is that he’ll do that faster and more effectively than his whiter-than-white predecessor Antony Jenkins. You’d hope so anyway, given a pay package that could be as high as £8.25m.