Barclays profit up as investment bank bounces back

Barclays posted a 22 percent rise in first-quarter profit, ahead of market forecasts, as a strong rebound in revenue from its investment banking arm and a drop in bad debt countered increased compensation for insurance mis-selling.

The bank reported an adjusted pretax profit of £2.45bn in the three months to end-March, up from 2 billion a year ago and above the average forecast of £2bn from a poll of analysts supplied by the company.

"Barclays first quarter results are an encouraging start to the year and demonstrate continued progress across our execution priorities," Chief Executive Bob Diamond said in a statement on Thursday.

However, Barclays made a statutory pretax loss of £475m, compared with a £1.6bn profit the year before, including a £2.6bn accounting loss on the value of its own debt and an extra £300m charge to cover for mis-selling of payment protection insurance (PPI).

Losses on bad debts dipped to £778m in the first quarter, down 16 percent on a year ago.

Top-line income at Barclays Capital, the investment bank business that provides the bulk of the bank's profit, rose to 3.46 billion pounds, up three per cent from a year ago. That marked a 91 percent jump from the weak fourth quarter of 2011 and was above the consensus forecast of 3.36 billion pounds.

BarCap, along with other investment banks, endured a miserable end to 2011 when a slump in bond trading income due to the euro zone sovereign debt crisis led to its worst quarter for three years. That same year banks were hit by tougher regulations.

Investment banks performed better in the first quarter as the eurozone crisis showed signs of easing. The first quarter is typically the strongest for investment banks and can set the tone for the year.

However, Swiss rival Credit Suisse said on Wednesday April market conditions had dropped off from healthier first-quarter activity levels echoing comments from US investment banks Goldman Sachs (GS.N) and JP Morgan Chase.

Barclays said its adjusted return on average shareholders' equity had risen to 12.2 per cent in the first quarter, from 10.2 percent in the same quarter the year before.

Diamond said the improvement reflected strong results in retail banking, Barclaycard and wealth and investment management as well as the improved performances in corporate and investment banking.

"Our rock solid capital, funding and liquidity positions remain a source of competitive advantage and enabled us to fund a substantial proportion of our 2012 term funding requirements he said.

In February, it pushed back a return on equity target of 13 per cent.

The bank said its Core Tier 1 ration remained strong at 10.9 per cent, compared with 11 percent at the end of 2011.

Oriel Securities reiterated its 'buy' recommendation and 285 pence price target on the stock.

"The current and forecast profitability should be seen in the context of a strongly capitalised, conservatively funded and very liquid balance sheet," said Oriel analyst Mike Trippitt.