Litigation issues and settlements are killing Barclays' balance sheet

It looks like Barclays parachuted in its new CEO James 'Jes' Staley just at the right time.

Today, the British bank reported a drop in third quarter profits before tax as well as slide in revenue.

Profit before tax fell to £861 million (£1.3 billion), from £1.22bn a year ago, while revenues fell to £6.1 billion, from £6.4 billion.

The slump in revenue in profits is mainly because it got stung with a double dose of legal settlements.

Barclays set aside another £290 million to deal with compensation for foreign exchange customers after the bank was fined £1.5 billion in May this year for its role in the manipulation of the currency markets. The lender also set aside £270 million to settle two claims in the US over mortgage-backed securities.

The total additional provisions for ongoing investigations and litigation, including the aftermath of the FX scandal, comes to £1.07 billion. This is on top of £500 million for the whole of 2014 in litigation provisions.

In tandem, total provisions for UK customer redress related to FX fixing in 2015 comes to another £1.322 billion. Last year it was at £910 million.

However, it looks like the Chairman at Barclays is banking on Staley making sure the lender becomes highly profitable again, and put these litigation issues behind Barclays.

"Today's results show another quarter of progress in our Core businesses alongside the early effects of some of the changes that we are making. We are pleased that Jes Staley will join us on 1 December as Group Chief Executive Officer, earlier than expected," said John McFarlane, Chairman of Barclays.

"As we align Barclays around our three priorities - focus on core (segments and markets), generating shareholder value, and instilling a high performance culture with strong ethical values - we now have a forward agenda that has been discussed and agreed with Mr. Staley. We will update the market on our plans for structural reform after we have agreed them with the regulator. Now that we have a new CEO in place, we will provide further updates on future direction at the full year results."

Staley was a hedge fund manager at the US-based BlueMountain Capital before he joined Barclays. Two years before that he was the CEO of JPMorgan's investment banking and asset-management unit. He oversaw the bank's "expansion into alternative investments" and earned huge sums even during the credit crisis, when his bank had to use some of the US government's temporary bailout funds.

He is the polar opposite of his predecessor Antony Jenkins who came from a retail banking background and which is why he got the job. He is essentially drafted in to get Barclays back to doling out big returns for shareholders.

Staley said in a statement yesterday, confirming his appointment as CEO of Barclays (emphasis ours):

"We will be committed to preserving and enhancing the trust that is the foundation of Barclays' reputation. Stability and long-term orientation are cornerstones for this great institution. We must recognise Barclays' special obligation to those principles. We must also continue the focus on shareholder returns which John McFarlane has mandated.

"Barclays is a very valuable franchise: from its retail and commercial banking presence in the UK, its strength in cards and payments, its strong position in Africa, to its Investment Bank. Maximising the potential of this franchise means building on our competitive advantages and developing new ones in order to generate strong returns on capital. If we do this, increased value for our shareholders will follow at the same time as Barclays' long history of leadership is continued and enhanced."

It's probably unsurprising considering the bank spent £1.1 billion in structural reforms but abandoned targets set out in the change to the bank.