Barclays shares open 2 6 higher despite investment banking profit almost halving

Barclays announced on Wednesday 30th July that its total adjusted profit before tax for the first six months of the year had fallen by 7% to £3.35bn, whilst non-adjusted profits fell 10% to £3.84bn.

Adjusted income fell 12% to £13.33bn. The earnings result beat most market forecasts with investors likely to be pleased at the progress made in this transitional year for the UK bank.

Barclays shares opened higher by 2% as a result of the earnings beat, topping the early risers on the FTSE 100 a lifting shares to 225p.

However, it’s the banks investment operational performance that will continue to raise the most headaches for shareholders. Barclays investment banking profits dived by a whopping 46% to stand at almost half the amount it made for the same period a year ago.

Income at the investment bank was down 18% to £4.25bn with income from markets falling 22%. This was the biggest drag on the groups’ total profit and does match similar weak performance across the sector as a whole on the investment side.

Antony Jenkins, Barclays Chief Executive, said “Performance in the investment bank was impacted by the repositioning underway as well as difficult trading conditions in the quarter, but it is where we expected it to be at this point.”

A focus on cost reduction has seen the firms operating expenses fall by 4.4% to £7.94bn, which was offset by high litigation charges of £177m and CTA charges of £453m. The firm says that they now also operate at their lowest headcount since 2007.

‘Transition year’ comes at a cost

The bank maintained that 2014 will be a ‘transition year’ as they continue to make investments and focus on balance sheet optimisation and cost reduction.

Whilst the bank must continue to restructure itself in todays new banking age where low market volatility and a dedicated migration away from fixed income trading as market confidence grows has sapped performance in investment banking.

The problems Barclays is experiencing in its investment banking division, which nose-dived in the last quarter, is being seen across the board at multiple banks. But this does not necessarily give the bank any excuses here.

What will be troubling for some investors is not just the fact that investment banking continues to sap underlying numbers for the group as a whole, but the deterioation in the last quarter and the potential impact on the groups full-year performance unless market activity picks up. This is the aspect which strikes me most, looking at these numbers.

Barclays shares are the weakest of all main European banks this year. Shares have fallen 20% year-to-date compared to a sector average gain of 1%, which perhaps emphasises the lack of longer-term confidence within shareholders right now on the banks performance.

Earlier this month, Barclays shares traded just above 200p, their lowest levels since October 2012.

So whilst today’s positive opening is good to see, I would not discount these concerns just yet and Barclays investment bank remains a key issue to overcome.