Earnings fell short of expectations and came as rising interest rates should be boosting returns, sending shares in the British bank down 9% - on track for their biggest one-day fall since the early stages of the COVID-19 pandemic three years ago.

Analysts said the results showed how an improving performance in the core consumer and investment banking businesses continue to be undermined by conduct issues, even as the economic environment turns more positive.

"Barclays has bitterly disappointed the market," said Hargreaves Lansdown equity analyst Sophie Lund-Yates. "Profits have been stunted partly because of a big increase in litigation costs relating to the over-issuance of U.S. securities."

Barclays' results were further marred by 1.2 billion pounds in credit impairment charges and a 26% leap in costs to 8.9 billion pounds. Net profit of 7 billion pounds ($8.5 billion) was down from 8.2 billion the year before.

The cost increase came despite a smaller bonus pool being awarded to its bankers of 1.8 billion pounds, down from 1.9 billion the previous year.

The bank said it would not hit a medium-term target of reducing its cost-to-income ratio below 60% in 2023, and it would achieve its goal of making a more than 10% return on tangible equity next year, having previously described this as a "medium term" goal.

The mixed performance meant Barclays paid out less than some shareholders had hoped. An annual dividend of 7.25 pence per share was in line with forecasts, but was accompanied by a buyback of 500 million pounds, less than had been forecast.

WALL STREET WINS

The latest set of results, and data compiled by Reuters, showed Barclays still has a way to go in achieving its long-harboured ambitions of unseating U.S. rivals in the top five global investment bank rankings.

Return on equity booked by the international unit which houses Barclays' investment bank, fell to 10.2% from 14.4% a year earlier, as fees from advising on debt and equity fundraising plunged by almost two-fifths year-on-year.

The bright spot was Fixed Income, Currencies and Commodities (FICC) trading - its traditional strength - where income rose 65%, beating U.S. rivals Morgan Stanley (MS.N) and Goldman Sachs (GS.N) which reported 20% and 38% year-on-year increases respectively in 2022.

Barclays said equities income for the year rose slightly, but that was almost entirely due to a near 300 million pound uplift from hedging arrangements it put in place to mitigate the costs of the U.S. overissuance blunder.

The bank earlier this month replaced the co-heads of its equities business as part of a wider reshuffle in its investment bank leadership. Its most recent fourth-quarter performance saw equities income drop 12% against a 10% fall on average at the five biggest U.S. banks.

Barclays' litigation and conduct charges for the year came in at 1.6 billion pounds, including fines and restitution to customers affected by its overstepping of agreed limits on U.S. securities sales.

Barclays said it had docked top executives' pay by a combined 1 million pounds to reflect the regulatory missteps.

($1 = 0.8239 pounds)