Barclays today said profits plunged 40% in the first quarter of the year as the economic impact of coronavirus battered its customers and prevented them repaying their loans.
The banking giant said it had set aside £2.1 billion to cover such bad debts, with a large chunk being set aside for credit card risks.
Pre-tax profits crashed from £1.5 billion in the first quarter last year to £900 million, and the bank warned that the covid impact only came late into that period
However, the company appeared to show chief executive Jes Staley’s strategy of retaining its investment bank paid off, as its work on behalf of clients needing to trade through the volatile covid-hit markets seeing a boost in profits.
That performance is likely to fuel Staley’s argument against an activist investor who has been demanding he scales back investment banking activities.
Barclays has been in the frontline of banks raising funds for UK businesses to get them through the financial crisis.
Staley told the Evening Standard: “We are right now giving interest repayment holidays, cancelling bank fees, helping SMEs, and we can do that because of the what that investment bank is generating right now.”
He said consumers, like SMEs, were trying to spend less and build up cash reserves, but said he hoped that would reverse dramatically when they get back to work. That was unusual for an economic crisis, where normally you see people increase their indebtedness.
“This is a terrifying moment for a lot of people. People are really stressed over their finances. We see it when they come into their branches, when they call our call centres… we are hoping for a reversal and people will again be looking for credit and drawing down on their cash. Activity will change dramatically when the decision is taken to reopen the economy.”
Asked about criticism Barclays and others were too slow to lend to SMEs through the government’s CBILS scheme, he said the scheme was hugely complicated to operate. It was hard both for banks working on a brand new loans system with staff fearing turning up to work at call centres, others working from home and causing potential compliance problems, and for the SMEs having to answer detailed questions about their businesses for the first time.
However, he said: “It is ramping up and will be a successful programme. We will take the risks of helping the SMEs but it is a challenge.”
He said Barclays has lent £737 million through the CBILS programme so far and added that the bigger loans scheme known as the CCFF for big companies had “worked right out of the blocks” because of its simplicity.
Overall, he said of the bank’s critics: “There has been some tough times and there is no way in an environment like that you are not going to have some people with complaints.”
Return on targeted equity – the key measure of profitability, came in at 5.1%. Pre-covid, the bank had hoped this would be more than 10%.
Barclays’ ROTE a year ago was 9.2%.
Staley said the investment bank’s markets business had a record quarter as clients needed to trade through the volatility in asset prices.
He said the investment bank was far smaller than it used to be and that much of its profit during the volatility had been simply from the spread between buying and selling securities and interest rate swaps for clients as big companies tried to hedge the various exposures of their businesses.
He said Barclays had possibly fared better than some US peer because it had a smaller securitised portfolio but had mainly benefited from the mass withdrawal from markets since the financial crisis of its former competitors in Europe.
He said: “Despite all the challenges we face as a consequence of covid-19, I am confident Barclays will emerge from this pandemic well placed to continue to serve our customers and clients, the communities and economies in which we operate, and our shareholders.”
In the UK, the bank’s profit before tax was £200 million against £600 million in the same quarter last year – a fall of 66%, hit by increased downwards pressure on margins and a reduction in fees for overdrafts and credit cards.
Along with other UK banks, Barclays was ordered to cancel its dividend by the Bank of England due to fears banks would need to preserve capital in the face of the looming economic crisis.
So far, however, the bank has high levels of capital, with the key core equity tier 1 ratio only slipping from 13.8% in December to 13.1%.
Finance director Tushar Morzaria said the low interest rate environment and covid-hit economic environment, UK operations in particular would be hit hard. While its markets business had been healthy it was too early to give guidance for how it might fare in the coming months.
He added: “Given the uncertainty around the developing economic downturn and low interest rate environment, 2020 is expected to be challenging. However, the group believes that a ROTE of greater than 10% remains the right target for the group over time.”
“Group targets are subject to change depending on the evolution of the Covid-19 pandemic.”
Given the economic worries, customers borrowed less on their Barclaycards, where income in the UK was down 11%.