Barclays Plc plans to cut costs, after the bank giant’s trading division failed to meet expectations in the third quarter. The firm also lowered its guidance for the UK lender.
Analysts had expected a revenue of £3,24 billion, but the British Group’s Corporate and Investment Bank reported £3,08 billion ($3.8billion), a lower figure than analysts. Fixed income, currency, and commodity trading fell by 26% compared to a year earlier.
C.S. Venkatakrishnan, chief executive officer of the investment bank, said that there were “pockets” of underperformance after a record year in 2015. Venkatakrishnan told journalists on a conference call.
Barclays has reduced its forecast for its domestic market for the net interest margin for this year from 3.05% to 3.1%. This was already reduced in July as the benefits of the higher interest rates begin to fade, amid what Barclays described as “a competitive environment for UK retail deposit.”
The lender’s shares fell 6.07% on the London Stock Exchange, which dragged down other UK banks. In early trading, the firm was the worst performing on the FTSE 100.
According to a Tuesday statement, the bank will present a full-year update to investors in February. It is also “evaluating actions to lower structural costs in order to drive future returns”, which could result in additional charges in the fourth quarter.
The bank refused to provide specifics but it’s likely that job cuts will be part of the plan.
Venkatakrishnan told reporters on a conference call that he had said “many times” that the details would be released in February. “We will continue to modulate our workforce wherever we are in the world.”
The third-quarter costs were £3.9 billion. This was slightly below the consensus estimate. Credit impairment charges, at £433 millions, were also a fifth less than expected. The bank reported a pretax profit of £1.9 billion.
Barclays is facing a difficult time as it tries to maintain its position as one of Europe’s last truly global investment bank. Venkatakrishnan sought strategy advisers earlier this year to develop a plan for the bank’s share price, which was lagging.
In a research report, Shore Capital analyst Gary Greenwood stated that “Barclays is the most undervalued mainstream UK bank we cover. However, we expect the uncertainty surrounding the impact of structural cost actions and the net interest margin pressure to hold back the shares in the near term.”
Barclays has decided to streamline its portfolio by selling a consumer finance business in Germany, and possibly its merchant acquiring business. Barclays Investment Bank is also close to a deal for a private fund with AGL Credit Management.
The income from trading commodities, currencies, and bonds fell by more than a quarter, to £1.15bn, while the profits on equity trading dropped 5%, to £675mn, after excluding the effects of the securities overissuance that occurred in the previous year. Analysts expected income of £1.2billion for FICC, and £602million for equity.
The advisory fees dropped by half, to £80million, due to lower client activity.
Barclays UK’s business, which includes consumer finance, personal banking and business banking, posted a total income of £1.9billion for the third quarterly, a fall of 2% compared to last year.
The net revenue for the firm’s Cards and Payments business was £1.4 billion. This is 9% more than last year due to higher balances on US cards.