(Bloomberg) -- Barclays Plc’s traders beat estimates in the third quarter, offsetting steep declines for its investment bankers as growing economic headwinds keep deals on the sidelines. 

Trading revenue rose 45% to £2.26 billion ($2.6 billion), ahead of its Wall Street rivals and more than the estimate of £1.76 billion, according to a statement Wednesday. This gain, driven by fixed income, commodities and currencies trading, excludes some hedging losses tied to its mistakenly issued securities earlier this year. 

Investment banking fees fell 45% to £533 million, missing estimates and broadly in line with declines at other firms. 

The British bank’s domestic unit was boosted this quarter by rising interest rates that sent income up 17%, although the group also increased charges against potential loan losses by £381 million due to the “deteriorating macroeconomic forecast.” 

The bank is yet to see any signs of stress at its consumer businesses, Chief Executive Officer C.S. Venkatakrishnan said in a call with journalists. Finance Director Anna Cross added that customers “are being cautious and remortgaging quickly and paying credit cards off at levels that are very high.” Many will feel the benefit of rising house prices that will improve their loan-to-value ratios, despite the spike in interest rates, she added.

The results echo Wall Street’s top firms, which were also lifted by consumer banking as higher interest rates helped drive up net interest income. That windfall -- revenue collected from loan payments minus what depositors are paid -- has proved particularly helpful at a time when investment bankers have been idled by skittish markets.

The results “suggests strength in UK banking,” Jefferies analyst Joseph Dickerson wrote in a note.

Recent turmoil in British politics hasn’t shaken Barclays’s commitment to the UK, according to Venkatakrishnan, who is awaiting developments on potential tax rises for the banking sector. He told journalists that “while taxation is the purview of the government,” having a predictable tax regime was an important part of London’s status as a global financial center.

He also noted that stresses linked to the pensions industry’s investments had eased markedly in the past few weeks, with Barclays assisting clients to manage risks in the gilt market. 

Meanwhile, the bank’s baseline assumptions for the economy have all declined in the past three months, with the lender now expecting 0.3% annual growth in UK GDP next year, down from 1.7%. The lender said it had reviewed its corporate loan holdings and was reducing its exposure by boosting credit protection. More than a third of its book is now covered by some form of protection, up from 26% pre-pandemic, Cross said in a call with analysts.

“We are ready to provide support for customers and clients facing an uncertain economic environment and higher cost pressures,” Venkatakrishnan said in the statement.

Barclays shares were trading 0.9% lower at 2:06 p.m. in London.

Clerical Error

Barclays said the total cost of the clerical error that saw it fail to register billions of dollars worth of securities was £722 million, roughly in line with a previous disclosure. The blunder led to a $200 million fine and a so-called rescission program to buy back securities it mistakenly issued, which it completed in September.

Trading revenue from fixed income, currencies and commodities rose 93% to £1.5 billion, beating the estimate of £1.04 billion. Equities trading revenue fell 6% to about £700 million, excluding the rescission costs. The changes were flattered by a plunging pound. On a US dollar basis FICC was up 63% and equities fell 21%.

In the corporate bank, the lending business had a quarter to forget after recording fair value losses on leveraged lending that pulled it to a loss of £181 million for the period. Transaction banking profits rose 57% to £677 million for the quarter.

What Bloomberg Intelligence Says

Barclays’ record FICC performance, beating by £500 million and rising 63% in dollar terms, is the pick of the bunch after US reporting set a solid tone.

Jonathan Tyce, BI banking analyst

The third-quarter results effectively mark Venkatakrishnan’s first year in charge after replacing Jes Staley, who abruptly stepped down last November amid an FCA investigation into his ties to financier and sex offender Jeffrey Epstein.

--With assistance from Donal Griffin, William Shaw and Neil Callanan.

(Adds detail on bank’s corporate loan book in 10th paragraph.)

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