September 22, 2020

DealBook: Barclays and Credit Suisse Show Weakness

LONDON — Barclays and Credit Suisse on Wednesday reported earnings declines for the first quarter, partly because of weaker revenue from their investment banking operations.

Barclays said its first-quarter profit fell 5 percent, to £1.01 billion ($1.67 billion), from £1.07 billion in the period a year earlier. Still, the bank’s chief executive, Robert E. Diamond Jr., said Barclays had “made a good start in 2011 in a challenging external environment.”

At the bank’s annual shareholder meeting in London on Wednesday, the earnings performance fueled criticism about executive pay packages at Barclays Capital, the bank’s investment banking unit, where pretax profit fell 33 percent in the quarter.

Richard Hunter, head of British equities at Hargreaves Lansdown Stockbrokers, said there was “disappointment that Barclays has failed to keep pace with some of its global peers.” Shares of Barclays fell 4.8 percent in London on Wednesday.

Credit Suisse, one of the largest Swiss banks, said its first-quarter net income fell 45 percent, to 1.14 billion Swiss francs ($1.3 billion), from 2.06 billion francs in the period a year earlier.

The bank attributed to decline in part to a write-down of 467 million francs on Credit Suisse’s own debt and the value of some derivatives. Earnings were also hurt by the appreciation of the Swiss currency against the dollar, it said.

Pretax profit at Credit Suisse’s investment banking operation fell 25 percent, to 1.34 billion francs, from 1.8 billion francs. Revenue from sales and trading at the unit fell 7.7 percent, less than at Wall Street rivals, and less than the 17 percent drop at Barclays Capital.

Credit Suisse shares showed little change on Wednesday in Zurich trading.

Earlier this year, both banks cut their targets for return on equity, a measure of profitability, on expectations that stricter capital rules and banking regulations would make banking less profitable.

Barclays is now aiming for at least a 13 percent return on equity and Credit Suisse at least 15 percent, compared with about 18 percent for both before.

Quarterly earnings at Barclays raised doubts among some analysts that the bank could meet this target by 2013.

“Although hard to achieve given the nature and influence of Barclays Capital, we believe that the group needs to deliver a few quarters of steady improvement in its return on equity to convince investors,” said Nic Clarke, an analyst at Charles Stanley in London.

The Independent Commission on Banking, which is backed by the British government, called this month for Barclays and other large banks to hold more capital to protect individual depositors in the event that their investment banking operations lost money.

But the commission stopped short of calling for a separation of the banks’ consumer deposit banking and investment banking businesses.

The prospect of such a separation had fueled speculation that Barclays would move its operations to New York from London. Barclays had warned that splitting consumer operations from investment banking, which had made up the bulk of its profit for some years, would seriously harm London’s standing as a global financial center.

A final recommendation by the commission on new rules is expected in September.

At the Barclays shareholder meeting in London, the bank’s executives were called upon to justify compensation for top managers, which had started to creep up again despite tighter regulation.

Mr. Diamond was awarded £6.75 million in salary and bonus for 2010 after not receiving a bonus in 2009. His bonus of £6.5 million for 2010 was “less than many of his peers in other similar banks,” according to Richard Broadbent, chairman of the compensation committee of the Barclays board.

Credit Suisse’s chief executive, Brady W. Dougan, received total compensation of 12.8 million Swiss francs in 2010.

Marcus Agius, the Barclays chairman, told shareholders on Wednesday that ‘‘if we are to remain competitive in a global marketplace, it is simply not possible — as some seem to suggest — for us unilaterally to reduce compensation levels without affecting future shareholder returns.”

Some Barclays shareholders were surprised by the bank’s decision to buy back a portfolio of troubled assets, including some backed by American subprime mortgages, that it had sold to a group of former employees in 2009.

The step represents a reversal just a year and a half after Barclays contended that the sale, which was also a highly complex accounting maneuver, would make its earnings less volatile.

Barclays is buying back the £6 billion portfolio after changes in capital rules for loans — including the $12.6 billion loan that the bank granted the asset holding vehicle, Protium Finance — made the entire structure less attractive.

To facilitate a sale of the troubled assets, Barclays said on Wednesday that it would pay $83 million to the manager of the portfolio and $270 million to buy out unidentified investors in the vehicle. The bank said the transaction would not result in a loss or a gain.

Julia Werdigier reported from London, and David Jolly from Paris. Chris V. Nicholson contributed reporting from Paris.

Article source: http://feeds.nytimes.com/click.phdo?i=01b4bb7805aa252df15e75a37a086845

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