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Banking giant Barclays has warned it may need to slash costs further this year as it revealed first quarter profits dropped 10%.

The lender reported underlying pre-tax profits of £1.5 billion for the first three months of 2019, down from £1.7 billion a year ago, after suffering a tough quarter for investment banking.

It cautioned that if the “challenging income environment” continues, it may need to reduce costs again to meet financial returns targets.

The group revealed it had cut bonus and compensation payouts across its corporate and investment bank to reflect the division’s poor first quarter performance.

On a bottom-line basis, the group swung to a £1.5 billion pre-tax profit between January and March, from losses of £236 million a year earlier, when it was hit by around £2 billion of conduct and litigation charges.

The difficult first quarter for investment banking left underlying pre-tax profits in its international division tumbling 20% to £1.14 billion, with income slumping 6% to £3.6 billion.

The corporate and investment banking business saw a slowdown in trading, but this was partly offset by falling costs as the bank cut bonuses.

Jes Staley, group chief executive of Barclays, said: “Three years ago, we took a charge of just under £400 million to allow us to better align variable compensation accruals with the firm’s revenues.

“What you see in the first quarter is Barclays using this discretion around variable compensation to manage our costs and deliver expected profitability.”