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Barclays profits plummet 25%

Barclays profits plummet 25%

Barclays has posted a 25 per cent drop in pre-tax profits after its investment banking arm saw an unexpected fall in earnings.

According to the bank’s first quarter results, pre-tax profits fell to £793m from the £1.1bn figure reported for the same period last year.

The fall was largely due to Barclays’ investment banking division experiencing a 31 per cent drop in its underlying profit before tax, which was mainly driven by a decline in banking and markets income, increased credit impairment charges, and higher operating expenses.

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Jes Staley, the bank’s newly appointed chief executive, is currently taking action to try to improve the performance in investment banking, and is also looking to speed-up the sale of the company’s non-core assets.

Mr Staley said the firm has made “good early progress” despite the warning issued in March that its first quarter results would be wobbly due to difficult market conditions.

He said the results indicate the core business is “performing well in a challenging environment”.

Barclays posted a £2.1bn loss over 2015.

Barclays announced last month that it would restructure the business into three separate banks: Barclays UK, Barclays Corporate & International, and Barclays Africa, each of which will have its own board, chief executive, management team and certain operational services.

Former chief executive Bob Diamond is currently taking steps to sell-off its African business.

Mr Staley also said the group is on track to meet its cost reductions target, with the core part of the business set to come within the £12.8bn mark for 2016.

He said being freed of its non-core assets - which includes its Asian wealth and Portuguese and Italian retail businesses - means the bank can eliminate costs which have a direct impact on its profitability and “mask the true performance” of the core business.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said investors were braced for some pain from the investment bank, and this “duly materialised”.

He pointed out, however, the market may be willing to look beyond the reduction in trading income, and view the restructuring costs as temporary impositions.

Mr Khalaf said the restructure was taking a long time to sort Barclays out, and this is “trying the patience of investors”, particularly seeing as they aren’t being paid as much to wait for recovery now the dividend has been halved.

Ian Forrest, investment research analyst at The Share Centre also said the results reflect the state of the banking sector and the challenges facing Barclays in particular, adding the difficult trading in investment banking makes it difficult to value the group at present.

Mr Forrest also said it’s “no surprise” the shares have struggled over the past six months.

“We therefore continue to recommend the stock as no more than a ‘hold’ for the time being and for those interested in the sector, we prefer HSBC.”