Barclays profit up 17% on equities boom, but shares fall as costs set to rise 

By Lawrence White

LONDON, July 28 (Reuters) - Barclays' first half profits rose by a better than expected 17% as it reaped bumper equities trading revenues from volatile markets, although its shares dropped on Tuesday in a sign of high investor expectations for British banks.

Profit before tax for the January to June period of £6.1 billion ($8.11 billion) was just above forecasts of about £5.94 billion, but Barclays shares fell nearly 5% as analysts said its equities performance undershot market expectations boosted by Wall Street rivals' bumper quarter.

Barclays, whose stock price has risen nearly 50% in the last year, also announced a fresh share buyback of £1 billion, above forecasts for £831 million, and dividends worth £800 million as it returns excess capital to shareholders.

The bank's performance was also tarnished by an additional £500 million in expected costs for the second half of the year, which it said included streamlining efforts.

"We anticipate spending up to £300 million in structural cost actions, directly related to making the organisation simpler, such as platform change processes," Chief Financial Officer Anna Cross told reporters on a conference call.

INVESTMENT BANK STRONG, BUT STILL LAGS WALL STREET

Barclays also slightly upgraded its income guidance for the year from £31 billion to £31.5 billion and said it was on track to meet its performance goals for 2026.

Barclays' investment bank, which differentiates it from domestic-focused UK rivals such as Lloyds and NatWest, delivered total income of £4 billion in the second quarter of the year compared with analysts' forecasts for £3.7 billion.

Revenues from equities rose 45% in the quarter compared with the same period last year, Barclays said. That lagged Wall Street rivals which were up an average 69% in equities, aided by the SpaceX IPO that helped supercharge earnings.

Barclays also logged a disappointing 1% gain in fixed income trading, its traditional strength, against a 13% average rise for the top five U.S. banks, a Reuters calculation showed.

Volatility in financial markets triggered by the Iran war has driven a trading frenzy that has boosted banks' revenues, while blockbuster M&A deals and IPOs have fuelled fees.

BANKS BRACE FOR LATEST LEADER'S POLICIES

Barclays is the first big British bank to report earnings this week, as the country's lenders warily eye Andy Burnham, the country's seventh prime minister in the last decade.

Having reaped record profits in recent years, banks have been concerned the left-leaning leader might hike taxes on them.

They received a boost on Friday, however, when Reuters reported Burnham's administration is likely to preserve the previous one's pro-growth approach to financial services.

($1 = 0.7519 pounds)

(Reporting by Lawrence White; Editing by Tommy Reggiori Wilkes and Alexander Smith)