How an otherwise healthy Wall Street bank totally blew its best quarter in years

The UK’s Barclays Bank reported its first quarter earnings this morning, and the numbers should have been fantastic. But they weren’t.

Pre-tax profit rose to $US2.8 billion from $US2.6 billion a year before, partly due to the restructuring and cost cutting plan CEO Anthony Jenkins instituted in the investment bank after the financial crisis. The plan is working, and these numbers should have been the greatest the bank has seen in years.

But, again, they weren’t. Barclays blew it because it had to take a $US1.2 billion legal charge. That’s about $US461 million more than analysts expected.

In the fourth quarter of 2014, weak trading revenue on Wall Street made all the headlines, but legal expenses killed banks across the board too. Here’s how that looked:

  • Bank of America shelled out $US393 million for legal expenses, down from $US2.3 billion a year before. That said, in the third quarter the bank shelled out $US5.6 billion for legal costs — so there’s that.
  • JPMorgan’s legal expenses held steady for the fourth quarter of 2013 and 2014, roughly hovering at about $US1 billion.
  • Goldman Sachs fared better, spending $US161 million legal expenses in the fourth quarter of 2014, down from $US561 million at the same time last year and $US194 million the previous quarter.
  • Citigroup’s legal expenses increased from the same time last year to $US3.5 billion from $US1 billion. In the third quarter of 2014 the bank spent $US1.3 billion on legal expenses.
  • Morgan Stanley’s legal expenses aren’t totally clear. We know only that the bank spent $US284 million “for legacy residential mortgage related matters” and that “Non-compensation expenses of $US2.8 billion decreased from $US4.1 billion a year ago, primarily reflecting lower legal expenses.”

Barclays also paid a $US230 million who bought bad loan payment protection.

That looks like pennies these days though, really.

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