Barclays $2.6bn bad loans overshadow trading surge

Bloomberg

A blockbuster quarter for Barclays Plc’s traders was overshadowed by a 2.1 billion pound ($2.6 billion) bad-loan charge stemming from the coronavirus pandemic.
The securities division reported a 77% jump in first-quarter trading revenue on Wednesday as the virus whipsawed markets, beating the average 30% gain at US peers. However, the lender set aside its biggest quarterly provision in a decade to cover defaults across the economy, and joined peers in warning of tough times ahead.
The chaos stemming from the pandemic was a boon for trading desks that benefited from the volatility, but any benefit to the banks is likely to be short-lived. The pandemic and its aftershocks have crippled corporate clients in entire industries, and Barclays said its worst-case scenario anticipates 17% US unemployment, as well as the US and UK economies contracting by almost half at the worst point.
“Future impairment charges may be subject to further volatility depending on the longevity of the Covid-19 pandemic,” Barclays said.
The spread of the coronavirus to developed countries sparked wild price swings in stocks and bonds. Barclays’ traders join their counterparts at UBS Group AG in having a record quarter and surpassing Wall Street.
“Given the uncertainty around the developing economic downturn and low interest rate environment, 2020 is expected to be challenging,” Chief Executive Officer Jes
Staley said in the earnings statement.
New accounting standards mean banks are trying to anticipate how businesses and consumers will be affected amid the lockdowns aimed at stemming the virus’s spread. Worsening credit quality will be “much more visible in the second quarter and beyond,” analysts at UBS have said.
Some of Barclays’s rivals have announced much bigger provisions. JPMorgan Chase & Co. said it would likely add more to loan-loss provisions in the second quarter after boosting them by more than $11 billion in the first three months of the year. HSBC Holdings Plc said it expected as much as $11 billion of damage this year
because of the outbreak.
Staley said in a Bloomberg Television interview that the securities unit’s performance showed the diversification benefit of having a universal bank that combines investment and consumer banking. Staley’s strategy to build the investment bank, which has been less profitable than other divisions, has faced repeated attacks from activist investor Edward Bramson.
“In the markets business, we have stayed invested in the last four years across all the asset classes, we’ve stayed very engaged with our clients,” Staley said. “The performance was very much driven by the volume of securities that we were trading with our clients, it was not based on any particular decision or direction that we had going in, so we feel very comfortable about it.”
Wednesday’s statement made no mention of regulators’ enquiries into Staley’s account of his relationship with the controversial financier Jeffrey Epstein. The company’s board has backed Staley, who is facing his second probe by UK regulators since joining the bank in 2015.
The bank is expecting some additional regulatory help on capital demands. A bank that falls below the so-called MDA hurdle faces restrictions on how it uses capital. The bank’s current MDA level is 11.5%, but Barclays says it expects this level to decline, giving the bank possibly more freedom.