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Staley's commitment to Barclays' investment bank pays off in third quarter

Barclays PLC investment bank reported a sharp rise in profits to £882 million reflecting well on CEO Jes Staley's commitment to the division in the face of attacks on its strategy from activist investor Edward Bramson.

A good performance from the investment bank was marred by a £1.4 billion charge for compensating consumers for the payment protection insurance mis-selling scandal which dragged Barclays to an overall loss of £292 million. Its total PPI provisions now add up to £11 billion.

Staley has been under pressure since Bramson's Sherborne Investors Management LP took a 5.47% stake in the bank 18 months ago. Bramson argued that Barclays should reduce its commitment to the investment banking operation and focus on core banking activities, claiming it would provide a better return. However, he failed in his attempt to win a seat on the board earlier this year.

Pretax profits at Barclays Corporate and Investment Bank were up 77% to £882 million on the same quarter last year. Fixed income increased to £816 million from £688 million in the same quarter in 2018 but was up 15% to £2.64 billion in the nine months to September and equities was up slightly in the quarter to £494 million but decreased by 11% to £1.4 billion in the none months to September as a result of reduced client activity. However, Staley reiterated the bank's commitment to the equities market business.

"To be a bulge-bracket investment bank in the two deepest capital markets in Europe and the U.S. you have to be in all capital markets including equities. We are going to stay fully invested in that business," Staley told analysts Oct. 25.

At the investment bank, return on tangible equity was 9.2% in the quarter, and 9.3% year-to-date. Banking fee income rose by 33% to £688 million in the third quarter from £519 million in the same quarter in 2018 which was ahead of US peers, said Staley.

'Benefits of our diversified model'

"This was the best third-quarter income performance on record. It shows the benefits of our diversified model," said Staley.

Though the overall pool for banking fees decreased, Barclays' share of the global banking fee pool has increased since the end of 2018 to 4.4%.

Transaction banking income also increased by 6% to £1.3 billion in the nine months to September after growth in deposits, though corporate lending decreased slightly to £563 million from £635 million.

Excluding the PPI charges and other litigation costs, the bank posted a return on tangible equity of 10.2% and Barclays is still sticking to a return on tangible equity target for 2019 of 9% and 10% for 2020. However, it said that given global macroeconomic uncertainty and persistently low interest rates Barclays said it has become "more challenging" to hit those targets.

The corporate and investment bank now accounts for nearly 60% of group risk-weighted assets, but group finance director Tushar Morzaria said this was not likely to continue to grow.

"I don't think you will see a net capital addition to the CIB as a trend basis at all," he said.