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(Bloomberg Gadfly) -- Jes Staley’s strategy of shedding assets to focus on a transatlantic investment banking and consumer business should be working perfectly this year. Most Wall Street debt-trading desks are doing brisk business.
Unfortunately, that doesn't appear to be the case. On Friday, Barclays Plc's first-quarter results caused the biggest one-day fall in its shares since the end of June. It’s a useful reminder to CEO Staley that competition is getting harder, rivals are bolstering defenses and shareholders will punish any sign that they can't rely on you.
Markets revenue fell
At first blush, the British lender's numbers don't look too shabby. Group revenue rose 16 percent and pretax profit more than doubled. But one-offs clouded the picture, with gains from asset sales totaling 266 million pounds ($344 million) in the bank’s international arm, according to Shore analysts. Meanwhile, a goodwill writedown on Barclays’ Africa unit -- which is being sold down -- cut attributable profit in half.
Worse, the bit of the business that should be firing on all cylinders, fixed-income trading, seems to be sputtering. Markets revenue fell 4 percent, with an uneven performance across debt, foreign exchange and equities. Barclays’ claims of tough comparisons with a strong quarter last year don't entirely wash. A Bernstein analysis of quarter-on-quarter performance, rather than year-on-year, shows Barclays traders and investment bankers delivering below-average revenue growth compared with Wall Street and even some Europeans.
This matters. UBS Group AG, which also had a pretty disappointing quarter in trading, can just about get away with it. The Swiss bank has been switching focus to other businesses such as wealth management, while it has delivered steady dividends and maintained a healthy balance sheet.
Barclays doesn't have that luxury. It's still restructuring and selling assets, so investors have been pinning their hopes -- perhaps too firmly -- on buoyant financial markets and a recovery in trading. Without that improvement, Staley may have to find more cuts, says Bloomberg Intelligence’s Jonathan Tyce.
The CEO's personal capital is crucial here too. His credibility suffered earlier this year after it emerged that he'd tried to unmask a whistle-blower. He says he has the board’s support. But, with a proxy advisor calling on shareholders to abstain from voting for Staley at this year’s annual meeting, and with regulatory probes ongoing into his conduct, there's still a cloud. One sure-fire way to get investors in your corner is to deliver. The first quarter trading performance won't have won too many friends.
It’s not all bad news, of course. Barclays is still keeping a grip on expenses while lifting revenue overall. It's on track to close a stack of its unwanted assets by June. Last year’s Brexit referendum hasn't yet dealt a big blow to the U.K. economy. Fee income was better than expected.
But with a lowish capital ratio of 12.5 percent and a relatively leisurely approach to building it up, Barclays is walking a “tightrope” that would be shaken by any economic slowdown in Britain’s or snags in selling the Africa unit, according to Bernstein analysts. "All the color I’m getting from shareholders is quite positive,” Staley said on Friday. The red on the FTSE 100 board suggests he shouldn't take that for granted.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.
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