DealBook: Barclays Swings to Profit but 1nvestment Banking Revenue Falls

Photo Barclays' results were hurt by lower revenue from investment banking and higher provisions for improperly sold insurance.Credit Suzanne Plunkett/Reuters

LONDON – Barclays said on Wednesday that it had swung to a profit in the second quarter, but its results were hurt by lower revenue from investment banking and higher provisions for improperly sold insurance.

The bank posted net income of 161 million pounds, or about $273 million, compared with £168 million loss in the period a year earlier. The results exceeded analysts' expectations.

Barclays set aside an additional £900 million in the quarter to compensate clients who were inappropriately sold payment protection insurance. The bank has paid a total of £3.56 billion on such claims.

It also said that the United States Justice Department had extended until 2015 the period of review imposed after Barclays employees manipulated global benchmark interest rates, while prosecutors examine the bank's conduct as part of an industrywide investigation of the foreign exchange market.

Barclays is in the middle of a restructuring plan that includes eliminating up to 19,000 jobs over the next three years. The bank said in a call with reporters on Wednesday that its head count was at its lowest level since 2007 and that it had eliminated about 5,000 jobs this year.

"Structural cost reduction is vital to achieving strong returns, and we continue to make progress on reducing operating expenses while maintaining controls and improving customer and client experience," Antony P. Jenkins, the bank's chief executive, said in a statement on Wednesday.

For the first six months of the year, profit from the bank's continuing operations rose sharply, to £1.13 billion, from £671 million in the period a year earlier. On an adjusted pretax basis, its first-half profit fell to £3.35 billion from £3.59 billion in the first half of 2013.

Pretax profit in the investment banking unit declined by more than half, to £567 million, from £1.14 billion in the period a year earlier. The bank plans to drastically shrink the division by eliminating 7,000 jobs there by 2016.

The bank increased provisions for claims involving payment protection insurance by £900 million in the quarter. The insurance product has cost banks in Britain billions of pounds to compensate consumers who were improperly sold the insurance.

Barclays is facing a variety of legal challenges, including a lawsuit brought by the New York attorney general, Eric T. Schneiderman, over the bank's so-called dark pool, or private stock trading platform.

In June, Mr. Schneiderman accused Barclays of favoring high-frequency traders over other investors in its dark pool, known as Barclays LX. Barclays has asked that the lawsuit be dismissed, saying Mr. Schneiderman had overstepped his authority.

Deutsche Bank and UBS also are facing inquiries from Mr. Schneiderman's office regarding their dark pools.

In a conference call with journalists on Wednesday, Tushar Morzaria, the chief financial officer of Barclays, said the volume of trading in the bank's dark pool had increased after declining briefly on news of the lawsuit, and was up 42 percent in its most recent report.

Dark pools have grown in popularity in recent years, in part because they allow big investors like pension funds to place orders privately, without alerting the rest of the market to their intentions.

Barclays has been subject to a nonprosecution agreement with the Justice Department as part of a settlement with the American and British authorities over manipulation of global benchmark interest rates by its employees. Under the agreement, Barclays would avoid criminal prosecution if it refrained from any additional misconduct for two years.

But the bank, which agreed to pay $450 million as part of the settlement, said on Wednesday that the Justice Department had extended the period for the nonprosecution agreement for a year as it conducts an industrywide investigation into potential manipulation of the foreign exchange market. The extension, which relates only to conduct subject to the currency inquiry, will give the Justice Department until June 27, 2015, to determine whether Barclays' trading activities constituted a "United States crime" under the terms of the agreement.

The bank's common equity Tier 1 capital, a measure of its ability to absorb losses, rose to 9.9 percent at the end of the second quarter from 8.1 percent a year earlier.

European banks are required to have a minimum of 4 percent common equity Tier 1 capital under the so-called Basel III regulatory program, but larger banks are required to maintain a much higher minimum capital level, which is set by regulators.

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