Credit impairment charges more than tripled from £408m in the same period last year, as strict lockdowns to slow the spread of Covid-19 devastated the global economy.
“We have faced extraordinary economic challenges, principally in the UK and US,” said chief executive Jes Staley.
The provision for bad loans was worse than the £1.4bn analysts had forecast. In the first quarter Barclays put aside £2.1bn, among the most conservative provisioning of any European lender, taking its total so far in 2020 to £3.7bn.
The charge drove a 91 per cent drop in Barclays’ net profit, to £90m, in the period, the London-based bank said on Wednesday. This was half of the £180m expected by analysts.
Despite being partially offset by a surge in trading revenue at the investment bank, investors remain pessimistic and Barclays shares fell 4.5 per cent on Wednesday, extending their decline to almost 40 per cent this year.
Mr Staley said that Barclays had “never had a stronger capital base [and] our hope is to be a firewall in the economic recovery and for the Covid pandemic”. This was very different to what happened with the banks during the financial crisis 12 years ago, he added.
The Barclays CEO warned that it “may experience stronger capital headwinds in the second half” and dividends and share buybacks would remain on hold until at least the end of the year.
The stress was most visible at the UK consumer bank. It accounted for £583m of the loan-loss provisions, overwhelmingly from the credit card business. The international Barclaycard unit added a further £414m of charges, pushing it to a loss for the quarter.
Finance director Tushar Morzaria said the level of coverage for unsecured consumer lending was at an “all-time high”. He added: “It feels like a good level of provisions at the moment . . . [but] we don’t have a crystal ball about future lockdowns.”
The bank is basing its loan-loss projections on a 6.6 per cent UK unemployment rate this year and a 8.7 per cent contraction in the country’s economy. The comparable figures in the US are 9.3 per cent and 4.2 per cent, respectively.
Spain’s Santander, which also reported on Wednesday, put aside an additional €3.1bn to deal with loan losses, raising its total this year to €7bn.
Barclays’ Covid-19 blow was tempered by a 49 per cent jump in trading income, as the investment bank benefited from high volumes in turbulent markets as companies scrambled to raise emergency funds and hedge exposures. However, this was not enough to prevent overall group revenue falling 4 per cent to £5.3bn as income in both the UK and credit card divisions fell.
Fixed-income revenue surged 60 per cent, but still lagged behind its larger Wall Street rivals such as JPMorgan, Goldman Sachs and Morgan Stanley, where revenues more than doubled. European peer Deutsche Bank posted a 39 per cent gain in the same business.
Mr Staley echoed his US peers by warning there would be an abrupt slowdown in the second half of the year as market volatility moderated.
Elsewhere in the investment bank, equity trading rose by about a third and fees from debt capital markets climbed by a quarter, but M&A advisory plunged 61 per cent as deals dried up during lockdown. As a result, overall pre-tax profits at the investment bank rose 17 per cent to £1bn.
“The second-quarter numbers at Barclays are strong . . . almost driven entirely by investment banking revenues,” said Jonathan Pierce, an analyst at Numis.
The performance, off the back of a similarly good first quarter, will reinforce Mr Staley’s case for preserving Barclays’ trading arm, which he has long argued is a valuable counterbalance to its traditional British retail business.
“The reason that we have been able to support the economy as extensively as we have and remain financially resilient is because of our diversified universal banking model,” Mr Staley said. “Even after impairment, we remain profitable.”
The investment bank has been subject to a multiyear attack from activist investor Edward Bramson, who has led several unsuccessful campaigns to shrink the division and unseat the chief executive.
Barclays’ capital ratio reached 14.2 per cent, up from 13.1 per cent at the end of March, as it was forced to conserve capital when the Bank of England banned dividends in the spring in response to the pandemic.