Trading places

26 April 2012 By George Hay, Peter Thal Larsen Follow @gfhay

The UK lender’s investment bank outpaced its German rival in the first quarter. But Deutsche Bank is in deleveraging mode, while Barclays’ risk-weighted assets actually rose. Capital challenges and mutual vulnerability to a misfiring euro zone could yet spoil 2012 for both banks.

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Barclays on April 26 reported investment bank revenues in the first quarter of 3.5 billion pounds, up 3 percent on the first quarter of 2011. Income in fixed income, currencies and commodities (FICC) was 2.4 billion pounds, up 9 percent on the first quarter of 2011.
Barclays reported net operating income for the first quarter of 2012 down 27 percent to 4.7 billion pounds, while a pre-tax profit of 1.7 billion pounds became a 475 million pound loss and a minus 4 percent return on equity. Adding back a charge reflecting the fair-valuing of Barclays’ own debt and a 300 million provision connected to payment protection insurance, return on equity was 12.2 percent.
Barclays’ core Tier 1 fell marginally to 10.9 percent from 11 percent in December, as risk-weighted assets ticked up 1 percent to 394 billion pounds. Applying the extra 70 billion RWAs expected from Basel III immediately instead of over time, Barclays’ core Tier 1 ratio would be 9.3 percent.
Barclays said continued challenging market conditions meant it was too early to establish the trend for the year.
Meanwhile, Deutsche Bank reported net income of 1.4 billion euros for the first quarter of 2012. The figure, which was down 35 percent on the same period of last year, was dented by one-off charges including a loss on the sale of the Actavis pharmaceutical group.
Revenue in the Deutsche’s corporate banking and sales division was 5.22 billion euros, down 11 percent year-on-year. Revenue in FICC was down 8 percent. The bank said it had gained market share, but that the lower volumes reflected market conditions as well as its reduced appetite for risk as a result of the ongoing euro zone crisis.
Deutsche’s core Tier 1 capital ratio improved by 50 basis points to 10 percent. However, assuming the full impact of new Basel III rules, the bank said its core equity capital ratio would be 7.2 percent by January 2013. Stefan Krause, Deutsche’s chief financial officer, said the bank had other options available to improve its capital ratios if needed, and that it did not need to issue equity to meet regulatory capital requirements.
By 1030 GMT, Deutsche shares were down 5.6 percent at 32.2 euros. Barclays shares initially rose 2.6 percent but then fell to 209 pence, down 1 percent.

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