DealBook: Facing Fresh Legal Woes, Barclays Swings to a Loss

Facundo Arrizabalaga/European Pressphoto AgencyA branch of Barclays in London. On Wednesday, the British bank posted a net loss of £106 million ($170 million) in its latest earnings report.

LONDON – The British bank Barclays faces more legal trouble, disclosing on Wednesday two new investigations by American authorities that clouded already weak third-quarter results.

The bank said the Justice Department and the Securities and Exchange Commission were investigating whether Barclays broke anticorruption laws in its capital-raising efforts during the financial crisis. The inquiries follows similar efforts by British regulators.

The United States Federal Energy Regulatory Commission is also investigating the past energy trading activity in the bank’s American operations. American authorities have until Wednesday to charge the bank in the matter. Barclays said it would defend itself against any charges stemming from the inquiry.

The fresh legal woes, coming on the heels of a rate-rigging scandal that erupted this summer, complicate a difficult turnaround effort by the bank.

On Wednesday, Barclays posted a net loss of £106 million ($170 million) in the three months ended Sept. 30, a steep drop from a £1.4 billion net profit it reported in the period a year earlier. The results were hurt by a charge on its own debt and provisions connected to the inappropriate sale of insurance to clients.

Justin Thomas/VisualMedia, via Agence France-Presse — Getty ImagesAntony Jenkins, chief of Barclays.

“The last three months have been difficult for Barclays,” Antony P. Jenkins, the bank’s chief executive, said on a conference call with reporters on Wednesday.

Shares in Barclays fell 3.8 percent in morning trading on Wednesday in London.

Mr. Jenkins took over as chief executive from Robert E. Diamond Jr., who resigned in July after Barclays agreed to pay $450 million to settle charges that it attempted to manipulate a key benchmark, the London interbank offered rate, or Libor. In the aftermath, Mr. Jenkins promised to increase the focus on retail banking, shifting away from riskier activity in the firm’s investment banking unit.

The new joint investigation from the Justice Department and S.E.C. relates to the bank’s capital-raising efforts during the recent financial crisis.

Unlike the Royal Bank of Scotland Group and the Lloyds Banking Group, Barclays turned to sovereign wealth funds in Abu Dhabi and Qatar for new capital. Barclays raised a total of $7.1 billion from Qatar in July and October 2008.

The bank disclosed this year that British authorities were investigating the legality of payments to Qatari investors in connection with the bank’s capital-raising. Barclays said on Wednesday that American regulators were also pursuing similar inquiries, adding that the bank was cooperating.

Despite its net loss, Barclays is making progress as its underlying businesses show signs of improvement. Excluding the adjustments, Barclays said pretax profit rose 29 percent, to £1.7 billion, in the third quarter.

In the face of continued market volatility, Barclays said pretax profit in its investment and corporate banking division more than doubled in the quarter, to just over £1 billion, on a strong performance in fixed income and equities. The European debt crisis, however, weighed on the bank’s retail and business banking franchise, where pretax profit fell 31 percent, to £794 million.

Ian Gordon, a banking analyst at Investec Securities in London, said the decline in revenue in the investment banking division raised some questions about the unit’s performance. He added, however, that Barclays was in a position to win market share, as competitors like UBS, which announced plans on Tuesday to eliminate 10,000 jobs, moved to reduce trading activity.

“As others pull back,” Mr. Gordon said, “there’s a potential to win a greater share of the piece.”

Barclays warned, however, that continued difficulties in Europe and uncertainty in global markets could weigh on future profitability. “We continue to be cautious about the environment in which we operate,” the bank said in a statement.

Given the challenging environment, Barclays is moving to insulate its businesses. The bank, which operates throughout the European Union, said it had reduce its presence in heavily indebted countries like Spain and Greece. The bank said it had cut its exposure to the sovereign debt of Spain, Italy, Portugal, Greece and Cyprus by 15 percent, to £4.8 billion.

It is also bolstering its capital to protect against potential losses. The bank’s core Tier 1 ratio, a measure of its ability to weather financial shocks, rose to 11.2 percent at the end of September from 10.9 percent at the end of the second quarter.

This post has been revised to reflect the following correction:

Correction: October 31, 2012

An earlier version of this article misstated the pretax profit Barclays attributed to its retail and business banking franchise. It was £794 million, not £794.

DealBook: Goldman Sachs Swings to Profit as Revenue Surges

Mark Lennihan/Associated PressLloyd Blankfein, chief of Goldman Sachs.

Goldman Sachs said on Tuesday that it swung to a profit in the third quarter, a strong comeback from a year ago, when it reported a rare quarterly stumble in the wake of losses in its private equity portfolio and broader global economic issues.

For the quarter, the firm reported net earnings applicable to common shareholders of $1.46 billion, or $2.85 a share, compared with a loss of $428 million, or 84 cents a share, in the quarter a year earlier.

Goldman’s revenue more than doubled, to $8.35 billion, from $3.59 billion in the year-ago period. The results exceeded the consensus of Wall Street analysts surveyed by Thomson Reuters.

“This quarter’s performance was generally solid in the context of a still challenging economic environment,” Lloyd C. Blankfein, Goldman’s chairman and chief executive, said in a statement.

The better-than-expected performance is welcome news for Goldman, which has had a tough year as it has struggled against both economic challenges at home and abroad and new regulations that have reduced profitability.

Goldman is not alone in feeling the profit pinch, and this quarter its rivals were aided by revenue from a boom in mortgage refinancing, a corner of the market in which Goldman does not have a big presence.

Still, net revenue in Goldman’s powerful fixed income, currency and commodities unit came in at $2.22 billion, 28 percent higher than the third quarter of 2011. The company said the increase reflected “significantly higher” revenue from trading in mortgages as well as a bump in revenue from trading items like currencies and interest-rate products.

During the first half of the year the firm earned roughly $3 billion in profit, down 20 percent from the same period last year.

The results also included a bump in the firm’s quarterly dividend, which the board recently voted to increase by 4 cents, to 50 cents a share.

Goldman’s annualized return on equity, a critical measure of profitability which effectively measures the profits a bank was able to generate on its capital, was 8.6 percent in the quarter. This is roughly the same as this time last year and up from 5.4 percent in the second quarter.

Still, Goldman’s single-digit return on equity is a stark reminder of how much more difficult today’s operating environment is. In 2006, its return on equity was 32.8 percent.

The firm set aside $3.68 billion, or 44 percent of its revenue, to pay employees. This is in line with previous accruals. The firm does not actually pay much of that out until early 2013, after it knows the year-end performance.

At the end of September Goldman had 32,600 staff consultants and temporary workers on the payroll, down 5 percent from a year ago. Goldman and its rivals have been moving to cut staff to make up for revenue shortfalls in a number of areas.