Barclays Thrives on Volatility as Equities Beat Wall Street

Barclays Plc’s traders had another strong quarter as pandemic-driven market volatility persisted.

The London-based bank’s securities division reported a 23% jump in foreign-exchange, rates and credit trading income in the third quarter, helping the companybeat earnings estimates. Equity trading jumped 40%. Barclaysalso posted lower-than-expected impairments from the virus crisis.

“The economic forecast is more moderate than we would have thought a couple of months ago,” and Britain’s mortgage market is “surprisingly robust,” Chief Executive Officer Jes Staley said Friday in a Bloomberg Television interview. “Capital markets globally will increasingly take a greater share of the financing of economic growth around the world, and we clearly saw that in the first three quarters of this year.”

Barclays’ equity-trading gains beat all of the big five U.S. banks in the quarter. Total trading income jumped 29%, surpassing the 21% average at its Wall Street peers. Staley has championed the trading business in the face of criticism and the move has paid off during the pandemic, with historic volatility generating some of the best quarters ever for securities firms.

The shares rose 3.5% at 8:02 a.m. in London. They’re still down 40% this year after the pandemic and forced dividend suspensions whipsawed banks around the world.

Barclays’ domestic British bank also benefited from a pickup in mortgage demand, swinging back to profit.

The performance comes despite a grim economic outlook. Barclays’ baseline forecast is for a more prolonged period of high unemployment in the U.K., though an upside scenario assumes a potential vaccine becoming available in the first half of 2021 and a consequent surge in consumer spending.

Dividend Desire

The lender took a 608-million-pound charge to anticipate bad loans from the crisis as Britain heads into a historic recession. Analysts had expected a 1-billion-pound charge in the quarter. It’s likely that impairments will fall in 2021, Barclays said.

The bank repeated that it would provide a year-end update on its plans for resuming dividends after the Bank of England forced banks to suspend them early in the crisis. “This is the strongest the bank’s balance sheet has been,” Staley said of the context for his talks with regulators.

Staley has long argued that the corporate and investment bank provides a hedge during a time of crisis, and recently promoted two lieutenants to execute his vision. The division is now led by C.S. Venkatakrishnan and Paul Compton, putting them in the spotlight amid speculation about Staley’s eventual successor.

Staley said this was the bank’s “best ever quarter in British pound terms” and was driven by “higher levels of client activity and volatility” in equity derivatives.

Staley said he is ready to implement negative interest rates if needed. “I think it is important that central banks keep in their wallet the ability to use negative interest rates, but I personally believe here in the U.K. it’s not likely,” he said on Bloomberg Television.

“We’d rather not charge our clients those negative interest rates, but we also have to manage the financial integrity of the bank,” he said.

— With assistance by Donal Griffin, Leonard Kehnscherper, and Anna Edwards

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