Johannesburg - Improved performance in South Africa helped drive income growth of 5% for the third quarter, UK banking group Barclays said on Monday.
The group, which owns South Africa's biggest retail banking operation Absa Group [JSE:ASA], on Monday reported a 13% increase in profit before tax - or 25% excluding a one-off pension credit of £54m in 2010 - for the third quarter.
"Income showed growth of 5% driven by improved performance in South Africa. Impairment charges improved by 11%, reflecting more stable economic conditions with improved retail collections and commercial recoveries. Operating expenses increased 7%, primarily reflecting inflationary pressures in South Africa and non-recurrence of a pension credit in 2010," Barclays noted.
Barclays said capital markets had remained difficult in October as the eurozone's financial problems deepened, and were likely to remain tough despite improvement since last week's announcement of plans to solve the crisis.
"There's no question market conditions this year have been challenging and we'd expect that to continue in some way into next year, given the weaker economic growth we're seeing," said CEO Bob Diamond.
Barclays has axed about 3 500 jobs this year, more than the 3 000 cuts earmarked for the year in August, and Diamond said the trend could continue as he fights to revive profitability and slash costs.
Profit up
Pretax profit in the third quarter through September reached £2.4bn. Stripping out a £2.9bn gain on the value of its own debt and other one-off items, profit was £1.34bn, up 5% on the 2010 period.
Analysts said the weakness in the Barclays Capital (BarCap) investment bank had been taken up by improvement in other areas, notably UK retail banking and the Barclaycard credit card arm.
"It does look as if all their businesses are making a contribution, which is always a decent sign," said Cavendish Asset Management fund manager Paul Mumford, whose firm owns about 1 million Barclays shares.
Barclays and its domestic rivals face having to separate their UK retail banking operations under planned reforms to safeguard taxpayers, but the bank declined to say how much extra this could cost.
It cut its holdings of troubled eurozone sovereign debt - from Greece, Spain, Italy, Portugal and Ireland - by 31% to £8bn. Half of that is Italian government bonds, and £2.7bn more is Spanish sovereign debt.
Resilient
Top-line income at BarCap, which is expected to provide more than half of this year's group profit, fell to £2.25bn, down 22% from the second quarter to be in line with the consensus forecast as capital markets activity was hit hard across the industry.
Analysts said that was a more resilient performance than US and European peers, which have shown an average fall of about a third. BarCap typically outperforms during difficult markets and can lag growth when markets boom.
Revenue in its fixed income, currencies and commodities dropped 16% from the second quarter - better than expected - but equities income slumped 40% and advisory income was down by a quarter.
BarCap's operating expenses were £1.8bn in the latest quarter, down 7% on the year but not as steep a fall as analysts had expected. Compensation accounted for 46% of income at BarCap, up from 43% a year ago.
Barclays' investment in US money manager BlackRock was marked down by £1.8bn, which it said had already been recognised in equity and regulatory capital.
Barclays said its underlying profit for the first nine months of this year was a shade over £5bn, up 18% from a year earlier.
This showed the benefit of diversity and underpinned "rock solid" capital, funding and liquidity, Diamond said, adding the bank did not intend to raise new equity capital.
Diamond said he also remained "absolutely committed" to his goal of improving return on equity to 13% by 2013.
RoE was 8.1% in the third quarter, from 6.5%.
He had outlined bullish targets for income at BarCap in June , which analysts said may need to be scaled back.
"We do expect tough conditions to remain, certainly for a while, but we would not factor in this being the scenario for the next three to five years," said Diamond, an American who took over as CEO at the start of this year after 14 years building up BarCap.
Losses on bad debts were £1bn in the third quarter, down 16% from a year ago, and have tumbled by a third this year.