Barclays first-quarter profit surprise marred by U.S. fines

By Lawrence White and Emma Rumney

LONDON (Reuters) - Improved income at its investment bank helped Barclays report a better than expected first quarter pretax profit of 1.7 billion pounds ($2.4 billion) on Thursday, although fines and legal costs from historic misconduct issues led to a statutory loss.

Barclays took a 1.4 billion pound hit from its settlement with the U.S. Justice Department over the sale of toxic mortgage-backed securities in the run-up to the 2007 financial crisis. Cover for claims against mis-selling of payment insurance products in Britain cost it a further 400 million pounds.

Barclays said it still intends to pay a dividend of 6.5 pence per share in 2018, despite those fines and costs eating into its capital reserves.

The first quarter results showed signs of progress in Chief Executive Jes Staley's policy of an aggressive bet on its underperforming investment bank, but also the risks of that full-throttle strategy as the bank's capital reserves shrank while risk-weighted assets increased.

The bank reported a common equity tier 1 ratio, a closely watched measure of financial strength, of 12.7 percent, down from 13.3 percent in February.

Risk-weighted assets increased by 4.9 billion pounds, which together with the fines and settlements outweighed capital generation from profits.

INVESTMENT BANK

Barclays' International division, which contains its under-pressure investment bank, showed signs of improvement with a profit before tax excluding litigation costs of 1.4 billion pounds, better than the 1.1 billion pounds average of analysts' forecasts.

Barclays reported its earnings a week after announcing Chief Executive Jes Staley would keep his job but face a fine following the results of a regulatory probe into his attempts to unmask a whistleblower.

With the announcement of Staley's reprieve from the harsher possible outcomes of that probe, investors are likely to focus more than ever on their chief source of concern with Barclays, the performance of the investment bank.

Barclays said income from its markets business in the first quarter rose 8 percent compared with a year ago, or 21 percent in U.S. dollar terms as the bank suffered in comparison with U.S. peers from earning much of its revenues in sterling.

Morgan Stanley on April 18 posted record first-quarter profits thanks to a surge in trading, much like other Wall Street banks that prospered in the first months of 2018 as major economies expanded around the globe and U.S. interest rates rose.

In a further sign of the confidence in its investment bank Barclays said it will re-open its Australian office, two years after the bank shuttered the bulk of its Asia-Pacific investment banking operation.

UK Asset Resolution, the vehicle set up to take on assets from failed lenders Bradford & Bingley and Northern Rock, also said on Thursday that it had sold two separate portfolios of mortgages worth 5.3 billion pounds to two subsidiaries of Barclays. ($1 = 0.7171 pounds)

(Reporting By Lawrence White and Emma Rumney; Editing by Sinead Cruise/Keith Weir)