By Lawrence White and Emma Rumney
LONDON (Reuters) - Barclays shares fell sharply on Thursday as investors worried about chief executive Jes Staley's plans to grow the bank's trading division, its worst-performing business.
The bank's shares fell by 7 percent, their worst single-day fall since the Brexit vote in June 2016, after it reported profit before tax well below analysts' expectations and its investment banking unit again underperformed.
"We had thought Barclays would struggle to disappoint (on) low Q3 expectations. It looks like they have succeeded," brokerage KBW said.
Barclays' markets income fell 14 percent to 3.5 billion pounds ($4.6 billion) in the first nine months of the year compared to the same period in 2016, including a 27 percent drop in macro income - fixed income, currencies and commodities (FICC)- mirroring a weak quarter for U.S. banks.
Staley has championed investment banking amid calls from some analysts and investors to ditch a business which has in recent years struggled to match the profitability of Barclays' more mundane retail and credit card units.
The Barclays CEO said he would push ahead with reinvesting in the business, outlining plans to shift some 20 billion pounds in assets from corporate lending to riskier but higher-yielding trading activities.
"We'll either get corporate clients to pay us more for the credit we are extending, or take that credit back," Staley told analysts on a conference call.
He said Barclays will also expand its products in the investment bank in a bid to boost returns, including offering more derivatives "without reengaging in the aggressive practices of the past".
BULLISH ON GROWTH
Barclays said profit before tax for the third quarter was 1.1 billion pounds ($1.46 billion), below a 1.43 billion pound average of analysts' estimates compiled by the British bank.
Staley signalled his confidence in the bank's ability to increase returns by putting a timeframe on its targets. Barclays said it aims to achieve an overall return on equity above 9 percent in 2019, and above 10 percent by 2020.
Barclays' current return on equity, excluding costs from the disposal of its Africa unit, is 7.1 percent although its two main divisions of UK and International achieved 9.4 percent and 10 percent respectively.
Barclays' targets are above the 8 percent return on equity predicted for 2019 by analysts at Jefferies, suggesting the bank's new deadline is an ambitious one.
The decision to set out a deadline is significant after rival HSBC last August abandoned its own timetable for reaching its targeted return on equity of above 10 percent.
Barclays, which also set out a new target cost to income ratio of 60 percent or less by 2019, said it had cut bankers' bonus pool for the quarter by 25 percent because of the poor performance.
Investment banks globally have struggled in recent years to make returns in excess of their cost of capital, as tighter regulations, pressure on fees from automation and low global interest rates combined to squeeze profits.
"The third quarter was clearly a difficult one for our markets business within Barclays International. A lack of volume and volatility in FICC hit markets' revenues hard across the industry, and we were no exception to this trend," Staley said.
Equities income fell 8 percent to 1.3 billion pounds, while credit was up 3 percent at 954 million pounds.
The bank gave no update on a probe by Britain's financial watchdog into Staley's attempts to unmask a whistleblower, which has led to regulatory and investor scrutiny.
Staley has admitted he should not have tried to identify a person who was raising concerns to the board.
($1 = 0.7538 pounds)
(Reporting by Lawrence White and Emma Rumney, additional reporting by John Geddie; Editing by Rachel Armstrong and Alexander Smith)
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