Barclays hits record annual profit as dealmakers outperform

A busy end to the year for Barclays’ dealmakers helped offset a slump in trading activity and lift the British bank to its highest annual profit on record.

In the fourth quarter, income from capital markets and merger advisory work rose 27% to 956 million pounds ($1.3 billion), capping a year of heightened activity in the wake of the pandemic and beating estimates. On an annual basis, these banking fees rose to 3.7 billion pounds, the highest since at least 2014.

Group profit before tax in the quarter jumped to 1.47 billion pounds, more than double last year and above expectations, as the bank undid more charges for potential bad loans that it took in the early stages of the COVID-19 outbreak. Annual pretax profit reached 8.4 billion pounds, the highest on record.

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Shares in Barclays rose as much as 3.8% in early trading.

Chief Executive C.S. Venkatakrishnan said the bank will stick to its so-called universal model of retail, corporate and investment banking, and highlighted digital services, global capital markets and the low-carbon economy as long-term priorities.

“I was part of the management team that put that strategy in place in 2016 and so you should expect some amount of continuity,” he told reporters. At the investment bank, “it’s a lot of organic growth, improving capabilities, filling in gaps” such as building emerging markets trading and securitized products, he said.

Known as Venkat among colleagues, the former markets chief took over after Jes Staley’s abrupt exit in November.

The bank also said Wednesday that finance director Tushar Morzaria is retiring and will be replaced by deputy Anna Cross in April.

London-based Barclays makes most of its revenue from corporate and investment banking, meaning it has profited more than its retail-focused rivals from the surge in deals and fundraising over the past year. This business can be volatile, though: revenue from fixed income trading plunged by 33% and equities fell 8% in the fourth quarter, following the decline reported by Wall Street’s top firms.

Venkat brushed off the impact of an outsized loss on currency hedges in December. “The vast majority of times, those transactions go very well,” he told reporters, while declining to comment on specific deals. “Once in awhile, it doesn’t go as well. We’re prepared for those things. We obviously don’t like them. We learn from them and we move on.

”This corporate slant can also require a higher wage bill to keep in-demand bankers happy. Bonus-related expenses rose 23% to 1.95 billion pounds. “Technology talent has been in demand and will continue to be in demand,” said Venkat. “And as far as other businesses, you will see fluctuations as they come and go. We feel entirely able to attract and retain very strong talent across the enterprise.”

The bank said it plans to repurchase as much as 1 billion pounds of shares and proposed a dividend of 6 pence per share for 2021. In Europe, top banks including BNP Paribas SA and UniCredit SpA are handing out record rewards to investors in the coming months, after postponing payments during the COVID-19 outbreak.

Impairments are “expected to remain below pre-COVID-19 pandemic levels in coming quarters given reduced unsecured lending balances and an improved macroeconomic outlook,” the bank said. Inflationary pressures, though, mean overall costs in the coming year are now expected to be “modestly higher” than the previous estimate of 12 billion pounds.

The fourth-quarter results also showed a net impairment release of 31 million pounds, compared with a 492 million-pound charge a year ago; and a CET1 ratio, a key measure of capital strength, in line with a year ago at 15.1%, with buyback to reduce this by about 0.3 percentage points.

— With assistance from Donal Griffin.