Barclays Profit Marred By $2 Billion Cost Of Blunders

Barclays' first-half profits were dented by a 1.9 billion pound ($2.3 billion) hit for regulatory missteps, including the costs of having to buy back billions of dollars of securities the bank sold in error.

The British lender on Thursday reported profits before tax of 3.7 billion pounds for the first six months of the year, down from 4.9 billion pounds in the same period a year ago and just below analysts' forecasts.

The decline was driven by a new 1.3 billion pound charge in the second quarter to cover the costs of buying back $17.6 billion worth of securities it sold in breach of U.S. regulations.

That was mitigated by a 758 million pound gain made on a hedge placed by Barclays against losses arising from the error, the bank said, adding that the net hit to its financials was 580 million pounds in the quarter.

The bank's total provision for the error stands at 1.8 billion pounds, in a sign of how conduct errors have blighted an otherwise often strong performance of the business in CEO C.S. Venkatakrishnan's first year in office.

"The strength which business and geographical diversity gives to Barclays are still much in evidence, although the U.S. securities error and the further provision have muddied the waters," said Richard Hunter, head of markets at interactive investor.

Barclays also became the latest bank to be involved in U.S. regulator investigations into non-compliant use of messaging groups by staff, which it said would cost a total of $200 million.

The bank said it had reached an agreement in principle with U.S. regulators this month to resolve the matter, with the final penalties expected to be paid in the third quarter.

Despite all those regulatory costs the bank said it would pay out a dividend of 2.5 pence per share and launch a buyback of 500 million pounds.

Barclays' shares fell 3% by 0745 GMT, as investors initially looked past the bank's otherwise resilient banking performance to the litany of fines and costs from its errors.

INVESTMENT BANK

Barclays' investment bank performed strongly, with overall income up 35% in the second quarter where most rivals saw sharp declines.

Barclays' fixed income, currencies and commodities business, seen by analysts as its traditional trading powerhouse, reported income up 71% in the period due to higher levels of activity as clients traded in volatile markets.

Equities income meanwhile rose by 82%, bolstered by the 758 million pounds gain from the hedge the bank put in place against the costs of buying back the over-issued securities.

Income from banking advisory fees decreased 37% in the quarter as the flow of deals collapsed amid market uncertainty caused by the Ukraine war and sharply rising interest rates.

The 35% increase in overall investment bank revenues showed the bank performing more strongly than European rivals such as UBS, which had a 14% fall in income from same business.

Barclays investment bank's gains in revenue in equities and FICC also outpaced those at U.S. rivals, such as Morgan Stanley, where equity revenues were up 5% in the quarter and FICC up 49%.

($1 = 0.8214 pounds)