Barclays' Q1 net profit fell 5% to £1.01B, due in part to uncertainty over how the company will be affected by wind-down of Protium investment fund
April 27, 2011
– Shares in Barclays PLC were were down nearly 5 percent on Wednesday after the bank reported a 5 percent drop in first quarter net profit and it sought to wind down a loss-making investment fund in the Cayman Islands.
Barclays said profit fell to 1.01 billion pounds ($1.67 billion) from 1.07 billion pounds last year. Investment banking income fell 15 percent while revenue dropped 8 percent to 7.4 billion pounds, the bank said hours before its annual general meeting.
However, impairment charges eased to 921 million pounds from 1.51 billion pounds a year earlier, helped by an unexpected writeback of 190 million pounds from a previous charge on the sale of its Protium investment fund in the Cayman Islands.
The company sold Protium for 7.4 billion pounds in 2009 to former Barclays executives and took an impairment charge of 532 million pounds on the deal in the fourth quarter. Barclays has now bought the fund back, intending to wind down the loan within three years.
Investors were spooked by the uncertainty over the future impact of Protium on Barclays' earnings. In midday trading on the London Stock Exchange, Barclays shares were down 4.9 percent at 287.15 pence.
Investec Securities said it was unclear what Barclays intended to do about Protium.
"If the intention of bringing Protium back on to the balance sheet is to expedite its run off, we will be looking for confirmation that management believes it can achieve this without taking charges," said analysts Gareth Hunt and Arun Melmane.
Analysts at Exane BNP Paribas, however, sounded more optimistic.
"The Protium transaction has now been substantially unwound ... and with a shortened three-year timeframe for an orderly run-off of the underlying assets now envisaged, we have improving visibility of the group's strategy to enhance capital efficiency, and hence a deliver a recovery in returns," said Ian Gordon.
Barclays said it paid $270 million to acquire third-party investments in Protium, and $83 million to C12, which will continue to manage the fund.
"Acquiring control of Protium will assist the group in facilitating an early exit from the underlying Protium exposures and improving returns," the bank said.
Chief Executive Bob Diamond said he believed the bank had "made a good start in 2011 in a challenging external environment," and he added that the bank had boosted its Core Tier 1 capital ratio to 11 percent.
Barclays said pretax profit in retail and business banking rose by 21 percent to 692 million pounds.
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