Barclays’ investment banking division beat expectations in the first quarter, outshining the wider group’s earnings drop and sending its shares to a six-week high.

Overall profits at Britain’s third-largest bank were down a quarter from a year ago, it said yesterday, due to the costs of new chief executive Antony Jenkins’ plan to overhaul the lender after a series of scandals involving interest rate fixing, mis-selling of products and boardroom excess.

But investors shrugged off the dip, focusing instead on the investment bank, where earnings were up 11 per cent, outperforming rivals Morgan Stanley and Goldman Sachs and accounting for most of Barclays’ profit.

“The big success story is, as ever Barclays Capital. It’s quite a remarkable number that, if you adjust to underlying profit, Barcap now accounts for 62 per cent of group profits and the number came in 10 per cent better than consensus,” said Ian Gordon, analyst at Investec. “Importantly it’s both a revenue and a cost story.”

Over half a billion pounds was spent in the first quarter of this year on Jenkins’ “Project Transform”, triggering a drop in adjusted pre-tax profit to £1.79 billion, just below a mean forecast of £1.85 billion from analysts.

The investment bank made a profit of £1.3 billion in the first quarter by keeping revenues steady and cutting costs.

Income rose one per cent to £3.5 billion, higher than the £3.3 billion expected by analysts. Growth in equities and advisory offset a fall in fixed income, currencies and commodities. Barclays said the good start to the year had continued into the second quarter across its businesses.

Rival Credit Suisse also posted steady first quarter revenues at its investment bank, raising expectations for UBS and Deutsche Bank, which report on Tuesday.

Barclays shares hit an early 6-week high and were up 1.2 per cent by 0945 GMT, outperforming the European banking index which was up 0.1 per cent.

The lender is expected to spend nearly £3 billion on “Project Transform” over the next three years, including another £500 million this year; axing 3,700 jobs, pruning the investment bank and reforming the bank’s culture after a series of scandals.

The overhaul is expected to cut annual costs by £1.7 billion and Jenkins said he was confident of meeting that target. “It’s early days but we’ve put an enormous amount of activity in place and I’m pleased with the progress we’ve made,” he said on a conference call.

Jenkins is attempting to distance the bank from the aggressive, high-risk culture championed by his predecessor Bob Diamond, who left in July after Barclays was fined $450 million for rigging Libor interest rates.

Diamond’s allies are leaving the bank, including Rich Ricci, the investment bank boss, and Tom Kalaris, head of the wealth management division.

The restructuring is expected to take five-10 years to filter through to the bottom line.

Most of the costs incurred so far were in its European operations, where it has cut almost 2,000 jobs, and the investment bank, where it is axing 1,800.

Barclays said its core capital ratio was 11 per cent at the end of March, and would have been 8.4 per cent if new Basel III rules were fully in force.

Scrutiny on UK banks’ balance sheets has intensified after the Bank of England last month said lenders needed another £25 billion of capital.Barclays said it was happy with its position.

“We continue to discuss it with them (regulators) and that dialogue will continue. We will do whatever is needed ... we’re happy with the fully loaded 8.4 percent core Tier 1, that’s demonstrating the ability to accumulate capital,” said Chris Lucas, finance director.

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