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Barclays Sees Challenging 2020 Even as Investment Bank Rallies

Published 10/25/2019, 02:27 AM
Updated 10/25/2019, 04:24 AM
Barclays Sees Challenging 2020 Even as Investment Bank Rallies
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(Bloomberg) -- Barclays (LON:BARC) Chief Executive Officer Jes Staley warned that low interest rates and Britain’s Brexit-hit economy will make it tougher to meet the bank’s targets next year, even as his traders outperformed most of Wall Street in the third quarter.

“The outlook for next year is unquestionably more challenging now than it appeared a year ago, in particular given the uncertainty around the U.K. economy and the interest rate environment,” Staley said in a statement on Friday. Barclays (LON:BARC) joins other British lenders such as Royal Bank of Scotland (LON:RBS), which has blamed the domestic economic environment for putting its targets at risk.

The corporate and investment bank’s third-quarter total income jumped 17% from the same period last year as revenue from fixed income and equities both advanced, Barclays said in the statement. Barclays outperformed its U.S. peers, whose trading income rose an average of 6.4%, according to Bloomberg calculations.

Barclays aims to boost return on tangible equity, a key measure of profitability, above 9% this year and then raise it past 10% in 2020. While Staley didn’t revise those targets, Citigroup Inc (NYSE:C). analysts have said 7% is a more realistic goal in the near term. To have any hope of meeting the targets, the American-born CEO must maintain a tight grip on expenses.

Staley repeated that Barclays plans to reduce expenses beyond its previous guidance, which had a lower bound of 13.6 billion pounds ($17.5 billion). The CIB unit’s revenue of 2.62 billion pounds beat the 2.42 billion-pound consensus analyst estimate.

According to the bank’s first-half results, Barclays shed about 3,000 jobs in the second quarter and cut variable compensation by more than 20%. Staley’s brake on costs has come at the expense of executive tumult: in a dispute over bonus cuts, he ousted his hand-picked head investment banker, Tim Throsby, and took direct control of the unit last spring.

The stock has lost almost 25% since Staley took the top job in December 2015. That sluggish performance led activist Edward Bramson to launch a campaign against the CEO’s strategy last year, arguing that the bank should redeploy capital from its investment bank to higher-returning businesses like retail banking and credit cards. Bramson has repeatedly said the lender is following a “destructive strategy."

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