UK bank warns on fallout even as traders enjoy bumper first quarter

Barclays has announced a sharp increase in provisions for bad loans, becoming the latest bank to prepare for a wave of defaults from retail and corporate customers as the coronavirus crisis upends the global economy.
First-quarter credit impairment charges surged almost fivefold to £2.1bn from £448m in the same period last year, far exceeding the £923m analysts had forecast, the London-based bank said on Wednesday. 
The charge pushed net profit down 42 per cent to £605m in the period, lower than the £810m forecast. The Covid-19 blow was partially offset by a 77 per cent jump in trading revenues — the best quarterly performance since 2014 — as the investment bank benefited from high volumes in turbulent markets.
The stress was particularly acute at Barclaycard — the credit card business that operates in the UK, US and Germany — which accounted for £885m of the virus-related loan-loss reserves. Similarly, its consumer arm, Barclays UK, saw net profit plunge 60 per cent to £175m.
“The impact of Covid-19 came late in what was until that point a good quarter,” chief executive Jes Staley said in a statement. “Given the uncertainty around the developing economic downturn and low interest rate environment, 2020 is expected to be challenging.”
Within group impairments, about £400m was the result of a single name and £300m was related to “the probability of a sustained period of low oil prices”, the bank said.
The remaining £1.2bn were the result of a “forecast deterioration in macroeconomic variables — including expected peak unemployment levels and troughs in GDP for the UK and US economies — partially offset by the estimated impact of central bank, government and other support measures”.
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Although bigger than forecast, the increase in reserves for potential loan losses echoed the experience of rivals. On Tuesday, HSBC said provisions jumped 417 per cent to $3bn, while Spain’s Santander and Italy’s UniCredit have set aside €1.6bn and €900m extra respectively to cover coronavirus-related credit losses.
Earlier this month the six largest US lenders increased first-quarter loan provisions by a combined $25.4bn — a year-on-year rise of 350 per cent.
The global economic devastation wrought by the coronavirus pandemic threatens to undermine Mr Staley’s turnround at Barclays, in what could be his last year at the bank he joined in 2015. 
Earlier this year, the Financial Times reported that chairman Nigel Higgins has kicked off the search for his successor, shortly after UK regulators started a probe into Mr Staley’s relationship with disgraced financier Jeffrey Epstein.
Mr Staley did score another victory against activist investor Edward Bramson — the bank’s largest shareholder — who has been agitating for dramatic cutbacks at the investment bank for two years. More recently, Mr Bramson led a campaign to unseat the chief executive after the Epstein revelations, but failed to win over other investors.
Barclays bolstered its case for preserving its trading arm as first-quarter fixed-income revenue surged 106 per cent, echoing comparable increases on Wall Street and at rivals such as Credit Suisse, UBS and Deutsche Bank. Equity trading rose 21 per cent and fees from capital markets and M&A advisory also improved.
As a result, overall pre-tax profits at the corporate and investment bank rose 45 per cent to £1.2bn in the period. The lender said the outlook was also good: “In April so far our revenue run-rate is well above that of the second quarter of 2019”.
Nevertheless, overall group profitability sharply declined. Barclays made a 5.1 per cent return on tangible equity for the quarter, almost half what it made last year, but said “a ROTE of greater than 10 per cent remains the right target for the bank over time”.