By Emma Thomasson and Steve Slater
ZURICH/LONDON (Reuters) - A hiring spree helped Credit Suisse <CSGN.VX> post record first-quarter investment banking revenue, outpacing rival Barclays <BARC.L> whose earnings were hit by economic wobbles hurting market activity.
Investors are closely watching banks' first quarter earnings as a barometer for the year as a whole, as they are typically the strongest period for investment banking.
Switzerland's second-largest bank reported an 8 percent rise in investment bank revenues to a record $5.4 billion on Wednesday, bouncing back from several weak quarters as investment in its fixed income business began to bear fruit.
That contrasted starkly with Barclays where income at its key investment bank arm fell 15 percent from a strong year-ago period to 3.3 billion pounds ($5.4 billion). The slight fall on the previous three month period disappointed investors and sent shares in the British bank nearly 5 percent lower.
Earnings at U.S. rivals have picked up from a weak end to last year but lag well below the bumper levels of a year ago, with activity hampered by North African and Middle Eastern political turmoil, Japan's earthquake and economic troubles in the eurozone.
Credit Suisse Chief Executive Brady Dougan said his bank's results showed an aggressive fixed income hiring spree early in 2010 was now showing reward, after initially backfiring as markets struggled in the second half of last year.
"The results are slightly ahead of expectations," said Cheuvreux analyst Christian Stark. "The main strength is investment banking, which is about 8 percent ahead of expectations on a strong fixed income performance."
And while Barclays benefited from building up its equities and advisory businesses, with revenue in each up around 10 percent from a year ago, its core fixed income area revenues fell 22 percent.
Rich Ricci, co-head of Barclays Capital, said he was still targeting regular quarterly revenues of 3.6-3.7 billion pounds.
"In normal economic conditions we would be 3.6 to 3.7 billion (pounds). Given the geopolitical issues and natural disasters we showed a resilient performance," he said on a conference call.
Credit Suisse's rival UBS <UBSN.VX> <UBS.N> had already raised expectations on Tuesday by saying its struggling investment bank fared better than expected in the quarter, lifting its shares.
Barclays reported a 9 percent fall in first-quarter profit, just below forecasts, hurt by losses on the carrying value of its own debt. Underlying profit was 2 billion pounds, up 10 percent on the year.
Credit Suisse's net profit fell 45 percent on the year as it also took a big charge on its own debt after it issued so-called contingent convertible (CoCo) bonds. The strength of the Swiss franc also hurt.
Swiss and British watchdogs are demanding lenders hold extra capital to prevent a repeat of the financial crisis and Dougan said his bank should be able to implement tough Swiss proposals without a big impact on its competitive position.
"We are encouraged that measures proposed by regulators outside of Switzerland suggest that progress toward a more level playing field is being made," he said.
Its private banking business pulled in net new assets of 18 billion francs, mirroring a strong performance at UBS.
Barclays said a plan by new chief executive Bob Diamond to boost profitability in the tougher landscape by selling assets, reshaping the bank and slashing costs by 500 million pounds this year was on track.
Its losses from bad loans dropped to 921 million pounds from 1.5 billion a year ago, helped by the release of 190 million pounds on its loan to Protium, a fund set up over two years ago to ring-fence its toxic assets, following an increase in the value of the underlying assets.
Barclays wants to end a 10-year loan to Protium early as new capital rules will make the loan too costly, and a change to the terms of that deal this month will allow it to get out in the next three years.
Barclays, which said trading in April had been in line with first quarter trends and it was content with current forecasts for 2011 of about 7 billion pounds, holds its annual shareholder meeting later. Some investors have criticized the pay of top executives and a lucrative bonus system for top bankers. ($1 = 0.6074 pound) (Additional reporting by Sarah White and Sudip Kar-Gupta in London and Martin de Sa'Pinto in Zurich; Editing by Alexander Smith)