5th Apr 2016 16:35
LONDON (Alliance News) - Barclays PLC on Tuesday said its investment bank had a tough opening quarter to 2016, reiterating a warning given to shareholders last month.
Although investment banking revenue in January and February was "broadly in line" with the same period a year earlier, current market conditions and a "particularly strong" March in 2015 mean that Barclays "does not expect as strong a performance" from the division across the quarter as a whole.
Revenue in Barclays' non-core division of unwanted assets that don't generate high enough returns or no longer fit with its strategy is expected to deteriorate further compared to prior quarters, the bank said, mainly due to "continued spread widening" on the fair valuation of its education, social housing, and local authority portfolio of loans.
The trading update echoed guidance given by Finance Director Tushar Morzaria on March 1, when Barclays reported annual results for 2015.
Morzaria had not expected as strong a performance for the whole of the first quarter in the investment bank and said that non-core revenue would probably fall due to the education, social housing, and local authority loans.
On Tuesday, Barclays said it is considering "strategic and capital markets led" options to sell down its 62% stake in Johannesburg-listed Barclays Africa Group Ltd. Having announced the plan last month, Barclays is now asking shareholders to approve "any such transactions" which would result in the de-consolidation of the business from its accounts.
The decision to sell down the stake in Barclays Africa Group came after a business review by Jes Staley, the former JPMorgan Chase & Co investment banker who became chief executive officer of Barclays in December, who is seeking to boost returns and effect a plan designed to restructure Barclays as a consumer, corporate and investment bank anchored in London and New York.
Staley, who is aiming reduce the stake to below 20% over the next two to three years, has said that capital requirements on banks mean that shareholders in Barclays would make better returns on capital by investing directly in the African business rather than indirectly through Barclays.
In addition, the cost of the UK's bank levy influenced Barclays' decision. The company expects its consolidated ownership of the African business would cost in the region of GBP40 million and GBP50 million per year due to the bank levy. "If this continued until 2021, when the bank levy is due to be restricted to a levy on UK banking operations, the aggregate cost could be in excess of GBP200 million," Barclays said.
Barclays will report first-quarter results on or around April 27. Its annual meeting of shareholders is scheduled for April 28, when a vote will be held to give Barclays the ability to sell down its stake in the African business to a level that allows deconsolidation from its accounts.
Shares in Barclays closed down 2.4% at 146.70 pence on Tuesday afternoon. The stock is down about 33% to date in 2016, trading at lows not seen since July 2012.
By Samuel Agini; [email protected]; @samuelagini
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