By Lawrence White and Sinead Cruise
LONDON (Reuters) - A stellar performance from Barclays' investment bank in the first quarter helped to soften a blow to the bank's profits from a 2.1 billion pound bad debt provision to cover loan losses from the coronavirus crisis.
The British bank booked first-quarter pretax profits of 923 million pounds on Wednesday, down 38% from 1.5 billion pounds ($1.87 billion) in the first quarter of 2019 and shy of the 1.27 billion pounds average of analysts' forecasts compiled by the bank.
Barclays said the impact of the coronavirus hit late in the first quarter and was likely to linger, striking a less positive tone than Standard Chartered which earlier on Wednesday reported a 12% dip in profit for the period.
"Given the uncertainty around the developing economic downturn and low interest rate environment, 2020 is expected to be challenging," Chief Executive Jes Staley said.
The impairments number included a 405 million pound hit from single name wholesale loan charges, while charges in its consumer, cards and payments division nearly trebled to 885 million pounds from Dec. 31, as the deteriorating economic situation increased the chances of customers missing payments.
The coronavirus outbreak has hit Barclays' credit card business particularly hard, with spending in Britain and the United States in the last week of March just half the volumes seen in the same period a year ago.
Barclays said group income rose by 20% to 6.3 billion pounds, boosted by a surge in investment bank activity where pretax profits leapt by 42% to 1.2 billion pounds.
The strong investment bank performance bolsters Barclays' strategy of maintaining a diversified business model, which Staley has consistently argued as a route to recession-proof returns.
The division, known as Barclays International, generated a 44% rise in income to 3.6 billion pounds, with the fixed income, currencies and commodities unit reporting a 106% income bounce as it cashed in on sharp swings in global markets.
Income at its markets business rose by 77% to 2.4 billion pounds, a record quarterly performance likely to undermine a campaign led by Barclays top shareholder Sherborne Investors to shrink the investment bank.
Equities generated a 21% rise in income while banking fees climbed by 12%.
"Since the financial crisis universal banking has been out of favour. However, Barclays’ results are a good demonstration of why tying high street and investment banking together can pay dividends," said Nicholas Hyett, Equity Analyst at Hargreaves Lansdown.
Barclays shares were 6.4% higher at 104 pence at 0908 GMT.
Banks like Barclays have been key to UK government efforts to keep British businesses and households afloat during the COVID-19 pandemic by slashing charges, dispensing billions of pounds of state-backed loans and granting debt repayment holidays.
As at April 24, Barclays said it had lent 737 million pounds via the Coronavirus Business Interruption Loan scheme, approved over 238,000 mortgage and loan payment holidays, and waived overdraft and business banking charges for more than 6 million customers.
Despite the tougher economic environment, the bank said it still believed its return on tangible equity target of greater than 10% remained appropriate over time. It delivered a group ROTE of 5.1% over the first quarter, while the investment bank chalked up 12.1%.
Staley said the coronavirus pandemic could permanently change how many bankers make the daily trudge into tightly packed city centre offices.
"There will be a long term adjustment in how we think about our location strategy ...the notion of putting 7,000 people in a building may be a thing of the past," he told reporters.
($1 = 0.8039 pounds)
(Additional reporting by Iain Withers. Editing by Jane Merriman and Richard Pullin)