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Barclays profit up on investment banking rebound

A logo of Barclays bank is seen outside a branch in Altrincham, northern England April 26, 2012.


Barclays PLC beat forecasts with a 22 per cent rise in first-quarter profit, as a strong rebound in revenue from its investment banking arm and a drop in bad debt countered increased compensation for insurance mis-selling.

The British bank reported an adjusted pretax profit of £2.45-billion ($3.9-billion U.S.) in the three months to end-March, up from £2-billion a year ago and above the average forecast of £2-billion from a poll of analysts supplied by the company.

"Barclays first quarter results are an encouraging start to the year and demonstrate continued progress across our execution priorities," CEO Bob Diamond said in a statement on Thursday.

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Top-line income at Barclays Capital, the investment bank business that provides the bulk of the bank's profit, rose to £3.46-billion, up 3 per cent from a year ago. That marked a 91 per cent jump from the weak fourth quarter of 2011 and was above the consensus forecast of £3.36-billion.

BarCap, along with other investment banks, endured a miserable end to 2011 when a slump in bond trading income due to the euro zone sovereign debt crisis led to its worst quarter for three years. That same year banks were hit by tougher regulations.

Investment banks performed better in the first quarter as the euro zone crisis showed signs of easing. The first quarter is typically the strongest for investment banks and can set the tone for the year.

However, Mr. Diamond told reporters there had been a slowdown in activity during April.

"Most people would say April was a bit sluggish compared to the first three months. It's still slow economic growth around the world, it's still a zero interest rate policy in developed economies, this is not a robust environment," he said.

Swiss rival Credit Suisse Group said on Wednesday April market conditions had dropped off from healthier first-quarter activity levels echoing comments from U.S. investment banks Goldman Sachs Group Inc. and JPMorgan Chase & Co. Barclays made a statutory pretax loss of £475-million, compared with a £1.655-billion profit the year before, including a £2.6-billion accounting loss on the value of its own debt and an extra £300-million charge to cover for mis-selling of payment protection insurance (PPI).

"What we've seen in March and, to a lesser extent in April, is a considerable spike up in the number of claims which is one of the big drivers of the level of provision. We felt the provision was a bit light based on current trends," Finance Director Chris Lucas told reporters on a conference call.

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Losses on bad debts dipped to £778-million in the first quarter, down 16 per cent on a year ago.

Mr.Diamond said Barclays was more downbeat than before on prospects for the British economy, which has fallen into its second recession since the financial crisis, but pledged support for the government's austerity measures.

"We're probably a bit more cautious in our thinking today than three or six months ago. We strongly support the Chancellor's efforts to manage the deficit in a way that the credit rating stays strong and the borrowing rate stays strong."

Barclays said its adjusted return on average shareholders' equity had risen to 12.2 per cent in the first quarter, from 10.2 per cent in the same quarter the year before.

Mr. Diamond said the improvement reflected strong results in retail banking, Barclaycard and wealth and investment management as well as the improved performances in corporate and investment banking.

"Our rock solid capital, funding and liquidity positions remain a source of competitive advantage and enabled us to fund a substantial proportion of our 2012 term funding requirements he said.

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In February, it pushed back a return on equity target of 13 per cent.

The bank said its Core Tier 1 ratio remained strong at 10.9 per cent, compared with 11 per cent at the end of 2011.

Oriel Securities reiterated its 'buy' recommendation and 285 pence price target on the stock.

"The current and forecast profitability should be seen in the context of a strongly capitalized, conservatively funded and very liquid balance sheet," said Oriel analyst Mike Trippitt.

Investec analyst Ian Gordon noted that the results were ahead of forecasts which had only recently been revised upwards and reiterated his 'buy' stance and 240 pence price target.

German rival Deutsche Bank on Thursday reported a weaker-than-expected first-quarter profit.

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