March 22, 2023

DealBook: Barclays and Credit Suisse Post Strong Earnings in Investment Banks

Barclays' investment bank benefited partly from a bullish stock market performance in America.Darren Staples/ReutersBarclays’ investment bank benefited partly from a bullish stock market performance in America.

LONDON — As European policy makers push financial institutions to cut back on their risky trading activity, some of the region’s largest banks are becoming more reliant on their investment banking operations to bolster performance.

On Wednesday, the British bank Barclays and a Swiss rival, Credit Suisse, both reported strong first-quarter earnings for their investment banks that helped to offset some sluggish growth in other divisions like retail banking and wealth management.

The healthy performance comes despite a push by European politicians to limit firms’ exposure to financial risks and to promote lending to local economies.

New tougher capital requirements have forced European banks to shed billions of dollars of assets since the financial crisis began. A proposed cap on banker bonuses that will become effective at European institutions next year has led to fears of a mass exodus of firms’ top earners to international competitors.

The two banks’ first-quarter earnings reflected the strength of investment banking.

Barclays’ quarterly pretax profit for its investment bank rose 11 percent, to £1.3 billion, or $2 billion, or roughly 74 percent of the company’s combined pretax profit over the period.

Over all, Barclays’ quarterly profit, when adjusted for one-time charges, was £1.8 billion, down 25 percent from the same period last year, which missed analysts’ estimates. The fall was linked to £514 million ($784 million) of costs related to a restructuring that includes 3,800 layoffs and a £235 million ($359 million) charge connected to the value of the bank’s debt.

Barclays’ investment bank benefited from renewed deal activity and a bullish stock market performance in the United States, where it now generates around 50 percent of its revenue. For example, the bank is advising Dish Network on its proposed $25.5 billion takeover of Sprint Nextel. “The reality is that investment banking is becoming more dominant for Barclays,” said Ian Gordon, a banking analyst at Investec in London. “The first quarter was a blowout performance.”

At Credit Suisse, pretax profit in its investment banking division rose 43 percent, to 1.3 billion Swiss francs, or $1.4 billion, partly driven by a strong performance in the bank’s fixed-income sales and trading business. In contrast, earnings from the company’s private banking and wealth management business fell 7 percent, to 881 million francs, over the same period.

Credit Suisse reported a net profit of 1.3 billion francs ($1.4 billion) in the first quarter, compared with a profit of 44 million francs ($47 million) in the same period last year, when the bank booked a loss of 1.6 billion francs ($1.7 billion) on the value of its own outstanding debt.

Analysts said the bank’s strong earnings were a result of a cost-cutting program started by the chief executive, Brady W. Dougan. The company’s investment banking division also benefited from a pickup in global stock markets in the first three months of the year.

“The investment bank was the main driver with impressive cost management,” Kian Abouhossein, a banking analyst at JPMorgan Chase in London, said in a research note to investors.

Shares in Barclays fell 1.3 percent in London on Wednesday, while Credit Suisse’s stock price rose 1.5 percent in Zurich.

Attention will now turn to other large European banks that will report their first-quarter earnings over the next few weeks.

Deutsche Bank, the largest bank in Germany and one with a major investment banking division, will announce its results on Tuesday, as will the Swiss banking giant UBS. Analysts are expecting a fall in UBS’s first-quarter net profit as the company continues to carry out sharp reduction in its investment bank, which includes around 10,000 job cuts, to focus on its wealth management business.

The continued reliance on investment banking at some of Europe’s largest institutions follows efforts by politicians and top banking executives to reshape the Continent’s financial sector.

Some banks, like UBS and Royal Bank of Scotland, are reducing their exposure to risky trading assets, while others, like HSBC and Standard Chartered, are increasing their operations in fast-growing emerging markets.

Antony P. Jenkins, Barclays’ chief executive, also is trying to rehabilitate the company’s image after a series of recent scandals. Last year, the bank agreed to a $450 million settlement with the United States and British authorities after some of its traders were found to have manipulated crucial global benchmark rates for financial gains.

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You’re the Boss Blog: This Week in Small Business: An Elevator on the Moon


A weekly roundup of small-business developments.

What’s affecting me, my clients and other small-business owners this week.

The Big Story: Republicans Go Small Business

The Republicans officially nominate Mitt Romney and unveil a debt clock in Tampa. Small businesses are a common theme at the convention and a few get starring roles, but Kelly Spohrs wonders whether they are really being heard. An MSNBC panel discusses which candidate is best for small business. Susan Solovic warns that partisan politics and small business don’t mix. A new quiz helps you determine how partisan you are. Some companies are cashing in on the political revelry.

Economy: Dreams of Retirement

Ben S. Bernanke gives a speech that has some people excited (but not Paul Krugman). Retailers posted strong gains for August. As housing prices continue to rise, Bill McBride analyzes the market. Farmers are eyeing record profits and even this 8-year-old’s stock portfolio is doing well. The Kansas City region reports (pdf) moderate growth, and tech jobs in San Francisco near their dot-com peak. The Fed’s Beige Book says the economy is growing slowly and gross domestic product is revised up. Over all, the economy posted moderate gains this summer, and John Jantsch feels there has never been a better time to be an entrepreneur. But wait, a new survey finds small businesses are experiencing sluggish growth, and the economy is hurting their owners’ retirement dreams. Households are worse off than they were three years ago. Consumer confidence is at a nine-month low. The four-week moving average of weekly jobless claims moved up, and manufacturing growth in Texas slowed. Vehicle miles driven, when adjusted for total population, set a “new post-crisis trough.” Mike Shedlock is concerned about government spending as a percentage of G.D.P. Jon Stewart welcomes the kids back to school.

Your People: Absolutely Loaded

Padmasree Warrior explains what employees really need at work: “There’s no one-size-fits-all for corporate technology and companies that take a hard line risk losing the hearts and, crucially, the minds of their employees.” Paul Guttry suggests a few employee-suggestion programs. Here’s what it feels like to be “absolutely loaded” by age 25. Donna Maria explains what to look for in a business coach. Pamela Slim says three things will kill your training program or event. Workplace stress doubles the risk of diabetes for women. A boy finds a piece of whale vomit worth $63,000. Novak Djokovic has fun with a fan.

Technology: B.Y.O.D. and XBRL

I.B.M. buys a social human resources firm. Edward Baig discovers that certain apps lighten the workload for small businesses. Evernote introduces an app tailored to small businesses. Google rolls out several new Google Plus features for businesses. Campaigner announces a new customer relationship management product. FreshBooks introduces an iPhone app to do billing on the go. Apple wants to pay you for your old iPhone but its victory over Samsung could mean fewer smartphone options. Here’s what to look for in a laptop bag. Bioengineered bacteria could produce fuel from CO2. Curiosity beams back high-resolution zooms of Mars. Here are some thoughts on managing in the bring-your-own-device era. And did you know that XBRL can lower your cost of capital? Most Americans are confused by cloud computing. Jay Heyman warns you not to fall behind in technology: “It is the idea, not the technique, that makes the difference. Keep current, but concentrate on what you do with the technology, not what the technology does.”

Management: Data Talk

Kelly Meeker lists the most creative start-ups in education technology. Kevin Ready learns a few things from one of Silicon Valley’s best known entrepreneurial educators, and here are seven pearls of start-up wisdom. This is how to make money from YouTube. Lara Lee and Daniel Sobol believe that data can’t tell you everything you need to know about your customers. Matthew Needham shares advice for getting stuff done. Diana Pohly says that consistency should be one of your top customer service goals. Jon Swanson suggests making it easy for your customers to complain.

Sales and Marketing: Another Old Spice Ad

Kelley Robertson explains how NOT to work a room. Jill Konrath offers some cold-call motivation tips that will keep sales productivity high. Lisa Hephner explains how to get press coverage for your small business. Ryan Eggenberger says that hiring an intern is one of three ways you can market your side business while you sleep: “You can find interns by asking on Facebook, e-mailing somebody with kids in high school or college, or just go to the local community college’s intern department.” Some brands are seizing on Prince Harry’s troubles. These four strategies will help you wage a successful text message marketing campaign. Kevin Webster shares 15 pages that use compelling images to capture leads. Here’s another awesome Old Spice ad.

Social Media: Facebook Will Die

These 29 companies tell you how to rock social media. A new company says it can track your social activity against Web traffic and revenue. Anjali Mullany warns that asking someone to follow you on Twitter guarantees he won’t. Rocco Pendola explains why Twitter will live and Facebook will die. Lisa Loeffler reports on how Fairmont hotels used a Facebook contest to segment audiences. Duncan Spencer predicts that mobile wallets will change mobile marketing by opening up “communicative interaction between the brand and the customer at the point of sale.” Location-based services are also expected to become big businesses. John Twohig believes that trust influences what motivates people in online communities to participate.

Around the Country: A Robotic Convenience Store

The Small Business Administration introduces a video portal for small-business success stories. Here’s one reason to move your business to Michigan. Greyhound deploys a robotic convenience store in an Oklahoma City bus terminal. Penn State students are no longer allowed to sing “Sweet Caroline.” The Council of Smaller Enterprises announces the lineup of keynote speakers scheduled to appear at its convention. A free webinar on Wednesday will explain how to increase revenue through pay-for-call advertising programs and call analytics. In certain urban areas, local merchants are accepting package deliveries for busy consumers.

Around the World: Icelanders Are Happy

Japan cuts its economic assessment. China’s industrial profits fall. Depositors disappear from Spanish banks as bailout rumors grow. But bank lending rises in the euro zone. Here’s a slide show update on the unemployment situation in Europe. In India, a 100-year-old lunch-delivery service goes modern. Geoffrey James reports that Icelanders are more than twice as happy as Americans. Indonesia plans new franchise rules to promote local businesses. These are the top 10 power women in Russia. Isha Suri thinks Dublin may be the world’s new start-up hub. Two London entrepreneurs create a traveling bar where they can make specialty cocktails from a bicycle.

Around the Universe: The Ultimate Penthouse

A new company is trying to raise Kickstarter money to build an elevator on the moon.

Finance: The Depressing World of Collections

Microlenders are providing a lifeline to more online businesses and a new program introduced by the New Jersey Department of Labor in partnership with the nonprofit Intersect Fund will support small-business development in poor and distressed areas of the state. Here are a few financing tricks from Inc. 500 companies. And here are 13 more tips and tricks to get you paid faster. Patrick Sah writes about the depressing world of collections: “Beneath the surface of compliance and cooperation, the typical collection agency has a set of rules that are not written down anywhere, the most important of which is ‘don’t get caught.’”

Tweet of the Week

@DaveKerpen – In a social media world, corporate transparency is no longer a choice.

The Week’s Best

Adrian Swinscoe says that big data insight into customer behavior can be good but immersion and observation are better. He suggests spending more time being your own customer; serving your own customers; talking, listening and learning from the people that serve your customers; watching your customers in real time in your own business and watching your customers in real time in other businesses: “You’ll get real and practical insights much faster than you will get using any other method.”

This Week’s Question: Do you have a B.Y.O.D. policy?

Gene Marks owns the Marks Group, a Bala Cynwyd, Pa., consulting firm that helps clients with customer relationship management. You can follow him on Twitter.

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Stocks & Bonds: Wall Street Higher After G.D.P. Report

Insurers led the gains as Allstate, Aflac and Lincoln National posted earnings that topped estimates. Sprint Nextel rallied 6.68 percent after it reported a narrower loss.

The Dow Jones industrial average rise 72.35 points, or 0.57 percent, to 12,763.31. The S. P. 500 climbed 0.36 percent to 1,360.48.

“Corporate America has managed to do very well in this environment of sluggish growth,” said Randy Bateman, chief investment officer of Huntington Asset Management in Columbus, Ohio. “Earnings are beating estimates. Companies are adding value to their shareholders. There are just not that many alternatives that can compete with corporate America at this point.”

The rise comes a day after stocks rallied on Wednesday as the Federal Reserve renewed its pledge to stimulate growth with low interest rates.

The S. P. climbed to an almost three-year high on Wednesday, and the Russell 2000 index of smaller stocks reached a record after the central bank renewed its pledge to keep interest rates near zero to stimulate the economy. The Federal Open Market Committee agreed to finish $600 billion of Treasury purchases in June.

Another round of buying is not needed to sustain the rally and there will not be an economic slump in the second half, predicted Mark Mobius, the executive chairman of Templeton Asset Management’s emerging markets group.

“We are in a bull market and it will continue,” Mr. Mobius said. “There will be corrections along the way, but these will be very temporary. The consumer in Europe and America is back. They’re not spending like crazy but they are spending.”

The S. P. 500 insurance index rose 1.7 percent, the biggest gain within 24 groups, as 21 of its 22 stocks rallied.

Constellation Energy Group climbed 5.71 percent to $36.26. Exelon Corporation, the operator of nuclear power plants, agreed to buy the power producer for about $7.9 billion in stock, adding stakes in five reactors and becoming the largest electricity marketer in the United States.

Over all, there have been more than 8,000 deals announced globally this year, totaling $794.7 billion, a 26 percent increase from the $629.7 billion in the same period in 2010, according to data compiled by Bloomberg.

Boeing gained 3.19 percent, the most in the Dow, to $78.55. Citigroup raised its share-price estimate for the world’s largest aerospace company to $90, citing positive momentum over the next several years.

The home builder PulteGroup. gained 3.26 percent to $8.24. Pulte forecast profit in the second half of the year. The company focused on cutting costs in the face of weak demand for new homes. Selling, general and administrative expenses for the quarter decreased 10 percent from a year earlier to $136 million. The rate of cancellations declined and visits to the company’s sale centers increased, Richard J. Dugas, chairman and chief executive, said.

Energy shares had the biggest decline in the S. P. 500, falling 0.2 percent as a group.

ConocoPhillips slumped 2.98 percent to $77.45. The company was cut to “hold” at Deutsche Bank, which cited disappointment with first-quarter earnings and said that the outperformance potential was limited.

Akamai Technologies Inc. tumbled 14.74 percent to $34.94. Traffic growth in the company’s volume business has “moderated,” and it was “too early” to predict the pace of growth for the rest of the year, said its chief executive, Paul Sagan.

The Treasury’s 10-year note fell 12/32, to 102 19/32. The yield fell to 3.31 percent, from 3.36 percent late Wednesday.

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