Barclays doubles Q1 profit before tax in Asia

Barclays PLC announced yesterday that its first-quarter net profit rose 12% to £826 million ($1.25 billion) from £736 million a year earlier. Revenue increased 42% to £8.15 billion from £5.72 billion. The bank said this was thanks to strong performances by Barclays Capital and most of the international businesses within global retail and commercial banking, as well as tight cost controls.

"We generated strong income growth across most business lines driven by the investments we have made in expanding our international network and in buying Lehman," group chief executive John Varley said in a statement. "This, together with good cost control, has enabled us to shield the anticipated increase in impairment and absorb further credit market write-downs on legacy assets. We recognise the importance of continued capital generation and we remain committed to prioritising returns over growth and to reducing leverage."

"The market was good for everyone in the first quarter," said Robert Morrice, chairman and chief executive at Barclays Asia, in a telephone interview yesterday. "But we have been well positioned to take advantage of it; our flow business is strong and our client franchise has grown significantly, everywhere."

Although Barclays does not break out its earnings by region, Morrice said that the firm doubled its profit before tax in Asia in the first quarter of 2009 compared with the first quarter of 2008. He said the investment banking business was up 30% in the same period.

Morrice said the front office head count has increased 20%, thanks to hires for the bank's equity business in Japan, as well as infrastructure (which includes IT, finance and operations) hires in Hong Kong to support the growth in Japan and prepare for an equity roll-out in late 2009 or early 2010.

"We've been building up new parts of the business, so we're busy," said Morrice, noting that this was notwithstanding the global downturn. "I'd much prefer to build a business in a bear market. It's really hard to do that in a bull market."

Specifically the firm has been building up its M&A team and the division it calls corporate finance, which includes specialists in natural resources, chemicals, technology, media and telecoms.

Indeed, one of its shining points is that pre-tax profits from its investment banking and investment management operations nearly tripled in the first quarter to £1.05 billion from £365 million.

The bank said the acquisition and integration of the Lehman business resulted in "a transformational change in Barclays Capital (the investment banking arm)", where profit before tax was rather far ahead of last year, rising 361% to £907 million. Income excluding credit market exposure losses, related income and hedges and gains on its own credit more than doubled to just over £5 billion driven by growth in the US, the bank said. Income contribution and growth came from interest rate, credit, commodity, prime services and equity products.

Of course, impairment charges increased significantly, primarily due to higher credit market write-downs. Costs increased with the inclusion of the acquired Lehman business and higher income-related costs.  And so income growth was partially offset by significantly increased impairment charges of £2.3 billion. Costs increased 37%, or by £1.2 billion, to £4.5 billion, reflecting the impact of acquisitions during 2008 and increased levels of income-related expenses. Furthermore, the first quarter 2009 results included net losses from credit market write-downs of £2.2 billion.

While further markdowns on assets could be required, Barclays has avoided nationalisation by seeking investment from wealthy Gulf states. For example, in 2008, Barclays turned to investors in Abu Dhabi and Qatar in order to bolster its finances. And the firm has also cut costs -- last month it sold its asset management business iShares to private equity group CVC Capital Partners for $4.4 billion.

Not surprisingly, Morrice, like executives at other firms who haven't put their hands into the government cookie jar, noted that the fact that Barclays hasn't taken government money has helped it build business. Similarly, the firm has been taking advantage of the "pullback" at other firms.

As for its outlook, the firm said in a statement that "April trading was consistent with February and March, after an exceptional performance in January". And the company line is that the focus of management is on returns rather than growth.

As Morrice put it in the phone interview: "We are very positive about the opportunities in the market. But I'm not going to get carried away with the first quarter results. There is a lot of work ahead of us. We feel well positioned to build out on the platform."