Barclays Profit Surges But Higher Costs Weigh on Performance

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LONDON—Barclays PLC profit soared on stock market trading revenue but an unexpected rise in costs clouded the bank’s performance.

The London-based lender, which operates a trans-Atlantic investment bank and a large U.S. credit card business, earned £1.7 billion in the first three months of the year, the equivalent of $2.37 billion, up from £605 million in the same period last year.

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Barclays shares fell 7% Friday after the bank said costs rose on higher compensation for investment bankers. While provisions for bad loans fell to £55 million from £2.1 billion in the same quarter last year, other British banks boosted profits by releasing reserves.

Citigroup Inc.

analysts said in a note the results were “solid” but “the market may have expected even more.”

The investment bank results mirrored the strong activity reported by rivals such as Goldman Sachs Group Inc. and Morgan Stanley.

Pretax profit from the investment bank, which trades fixed-income securities, equities and derivatives, rose 46% to £1.7 billion in the first quarter.

The performance of the investment-banking arm is a boost for Chief Executive

Jes Staley,

who has backed the unit in the face of criticism from activist investor

Edward Bramson,

who has called for the unit to be scaled back. Mr. Bramson’s Sherborne Investors owns about 6% of Barclays.

In the first quarter, Barclays ranked seventh among global investment banks in terms of revenue, one place behind

Credit Suisse Group AG

, the highest-ranked European bank, according to Dealogic.

Mr. Staley said Barclays wasn’t affected by the collapse of Archegos Capital Management, which saddled Credit Suisse,

UBS Group AG

and other banks with a collective $10 billion of losses.

“We were fortunate and avoided a lot of the issues that the street faced, so credit to our risk teams,” Mr. Staley said.

Costs at Barclays rose 9% to £3.5 billion in the first quarter. Jefferies analyst Joseph Dickerson said the increase was disappointing and “likely to be probed by investors.”

The U.K.’s rapid rollout of Covid-19 vaccines has improved the prospects for all British banks. Public-health restrictions were relaxed further this month and the country is on course to fully reopen its economy by the summer.

After setting aside billions of pounds for bad loans in 2020,

HSBC Holdings

PLC,

Lloyds Banking Group

PLC and

NatWest Group

PLC released some of those provisions in the first quarter, citing improving economic prospects.

“We try to be prudent in the way we think about provisions,” Barclays Chief Financial Officer

Tushar Morzaria

said. “We made these judgments at the end of March, but if you look at it again now and we were to run our models on up-to-date economic data there would be at least a £500 million provision release.”

Also Friday, a strong investment banking performance boosted France’s largest listed bank

BNP Paribas SA

. Like Barclays, BNP Paribas wasn’t involved in the Archegos drama. Net profit rose 38% to €1.77 billion, the equivalent of $2.14 billion, beating analysts’ expectations of €1.24 billion, according to a consensus forecast provided by FactSet.

The Paris-based bank benefited from strong client activity in volatile markets, and a strong rebound in its equities business, in a reversal from a year earlier when it booked steep losses on complex derivatives linked to companies’ dividends.

BNP Paribas has looked to beef up its profile as a leading European investment bank, rivaling the U.S. giants, such as JPMorgan Chase & Co, that dominate the region. BNP Paribas said Friday that it is in the process of integrating parts of

Deutsche Bank AG’s

investment banking operations, which it agreed to acquire in 2019.

Write to Simon Clark at simon.clark@wsj.com

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