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Barclays Rises as Cost Cuts, Trading Gain Trumps Profit Fall

  • Bank posted $1.4 billion pretax loss at non-core division
  • Fixed-income trading revenue climbed 10 percent in quarter

Barclays Plc shares climbed as fixed-income trading revenue outperformed European rivals and the bank said the non-core unit will weigh less on profit in 2017.

The stock jumped as much as 9 percent in London, the biggest intraday gain in almost two years, after analysts pointed to a drop in expenses and an increase in capital as bright spots even though profit fell. Pretax earnings, excluding notable items, fell 53 percent from a year earlier to 763 million pounds ($1.01 billion), missing the 985 million-pound average estimate of six analysts compiled by Bloomberg.

Chief Executive Officer Jes Staley in March cut the firm’s dividend in half to give the bank more capital to absorb losses from a quicker rundown of the non-core unit. He aims to close that division by the end of next year, allowing investors to focus more on the bank’s central businesses of U.K. retail banking, credit cards and a transatlantic investment bank.

“The strategy remains the right one in our view,” Staley, 59, said on a call with journalists. “We will reduce our non-core drag by over a billion pounds from 2016 to 2017.”

Falling Costs

The bank’s cost-income ratio fell to 65 percent from 69 percent, the lowest that measure has been in at least two years. The bank’s common equity Tier 1 ratio, a measure of its capital strength, rose to 11.6 percent from 11.3 percent in the first quarter.

Barclays’s core units posted adjusted pretax earnings of 1.85 billion pounds on revenue that was little changed. While that profit was down 7.5 percent from a year earlier, it was 10 percent higher than consensus estimates, JPMorgan Chase & Co. analysts led by Raul Sinha wrote in a note to clients.

Revenue from fixed-income trading rose 10 percent to 881 million pounds, while Deutsche Bank AG and Credit Suisse Group AG reported drops in their bond-trading units this week. Barclays corporate and investment bank made a return on tangible equity of 9.5 percent, while similar units at JPMorgan and Morgan Stanley posted returns on equity of 15 percent and 8 percent, respectively.