LONDON Barclays shares fell sharply on Friday as investors focused on a poor performance at its markets business, a key part of its growth strategy, that missed out on a bond trading boom enjoyed by Wall Street rivals in the first three months of 2017.
The British bank is seeking to press ahead with restructuring plans which have seen it shift towards a transatlantic U.S.-UK focus and an emphasis on investment banking under its American Chief Executive Jes Staley.
In its trading division, income from its markets business fell 4 percent to 1.35 billion pounds, as macro income fell 14 percent due to a weaker performance by its U.S. rates business and the impact of exiting energy-related commodities.
Equities trading income also fell 10 percent, driven by lower revenue from U.S. equity derivatives.
By contrast, Barclays' Wall Street rivals saw bond trading revenues rise by an average of 21 percent in the first quarter, with investors adjusting their portfolios in response to rising interest rates, and elections in Europe.
Deutsche Bank reported on Thursday that its markets business also lagged its U.S. peers last quarter, but reported an increase nonetheless in revenues.
Analysts were unimpressed by Barclays' results.
"After a strong set of fixed income results from U.S. and European peers, Barclays Q1 results are disappointing," Bank of America Merrill Lynch analysts said in a note.
Barclays shares traded 4 percent lower at 0850 GMT, their worst day since the aftermath of the Brexit vote last June.
Staley attributed the poor performance to weakness in the bank's U.S. rates business and a tough comparison with the previous year and said that it would be wrong to start questioning the business based on one quarter's performance.
"You can't make a judgement on the investment bank based on one quarter," he said on a conference call with reporters.
Staley's attempts to revitalise the investment banking business have been clouded by probes in the U.S. and Britain and criticism from investors following his attempts to unmask a whistleblower, which Barclays insiders fear could unseat Staley if the investigations' findings are damning.
Former JPMorgan banker Staley told reporters he had not offered his resignation to the board over the affair and that he was fully cooperating with the regulators.
Barclays said its profit before tax was 1.7 billion pounds, up from 793 million pounds a year ago and better than the 1.46 billion pounds average estimate of analysts' forecasts compiled by the bank.
But part of that increase was driven by proceeds of sales of a credit card portfolio and a gain in the value of the bank's preference shares in Visa Inc, with underlying earnings growth more muted.
Barclays still faces a series of regulatory obstacles, with an ongoing probe by Britain's Serious Fraud Office (SFO) over its 2008 cash call at the height of the financial crisis and accusations by the U.S. Department of Justice (DOJ) over mortgage mis-selling.
Barclays also faces a further headache from political upheaval in South Africa, which is hindering the bank's efforts to sell its business there - a key element in its strategy to boost capital levels to meet regulators' demands.
Barclays said it would take a one-off goodwill impairment charge of 884 million pounds on its stake in Barclays Africa Group, which it has given itself 2-3 years to sell down.
Its core capital ratio, a key measure of financial strength, rose to 12.5 percent from 12.4 percent last quarter, making it the most thinly capitalised of the major UK banks.
"The bank continues to ride a capital tightrope," Bernstein analysts wrote in a note.
"UK macro and South African politics will dictate whether Barclays escapes another capital raise," they added.
The bank said it would create 1,000 new roles in the UK in operations and technology, with a further 1,000 to come over the next three years.
(Reporting by Anjuli Davies; Editing by Rachel Armstrong/Keith Weir)