Barclays PLC CEO Jes Staley has been given a chance during the current earnings season to boast about the success of the U.K. bank’s investment bank after its markets division outperformed peers.
The corporate and investment bank delivered £1 billion in pretax profit in the third quarter, said Staley when unveiling quarterly results, adding, "Over 85% of the bank’s profitability in the last three months came from the corporate and investment bank."
Activist investor Edward Bramson has over the past two years regularly called for the U.K. bank to slim down its investment arm, but analysts during this earnings season have praised its performance.
Staley said the broad restructuring of the overall bank to create its present diversified structure was completed more than a year ago and management was now concentrating on growth.
"At the investment bank, we have one of the lowest cost-income ratios in the industry and given that we’ve taken our market share in the markets business from 3.5% to 5%, we want to continue to invest there, so I wouldn’t look at performance in the investment bank in terms of reducing costs because I think costs are quite low versus our revenues but [instead] can we continue to drive revenue there?" he said.
Overall income at the corporate and investment bank increased 11% year over year to £2.9 billion, with income at its markets division increasing by 29%, resulting in its best-ever third quarter. The division’s cost-to-income ratio was 59%. It returned a pretax profit of £1 billion, up from £900 million in the same quarter last year.
Fixed income increased by 23%, with a particularly strong performance in credit reflecting wider spreads, while equities had its best-ever quarter in sterling terms. Increasing 40%, the figure was driven by equity derivatives in a volatile market. Banking fees decreased by 11%, however, following reduced income in its advisory business.
The investment banking arm delivered a return on tangible equity of 9.5% in the quarter, up slightly year over year.
When analysts asked about whether costs were likely to increase next year, the CEO replied, "One of the characteristics of an investment bank is that you know you have variable revenues but you also have variable compensation, which allows you to calibrate your costs to your revenues and you’ve seen us do that over the last three or four years."
"I think the cost-income ratio at the investment bank shouldn’t really move that much … so unless there is a significant change in revenue forecasts, I wouldn’t expect any significant change on the cost side."
Staley also underscored that the bank recognized the importance of capital returns to shareholders and said the bank would decide on its dividend and capital returns policy at the end of the year.
The Bank of England is reviewing whether banks should resume paying dividends after its request to major banks to stop doing so during the coronavirus pandemic.
The bank also said it was operationally ready if the BoE introduced negative interest rates. The central bank has said it is considering the role negative rates might play in the present economic situation. However, Staley said such a move would be a poor sign of confidence in the economy.
"There is a real question on the impact ultimately of negative interest rates. We are already close to zero and I think we have put the pedal down almost as hard as we can in terms of monetary policies to generate economic growth," he said.
Impairments at the bank in the third quarter were £608 million, which was £1 billion lower than the second quarter.