LONDON (Reuters) -Barclays reported a 12% fall in first quarter profit on Thursday, as a squeeze on UK mortgage pricing, lower income from trading and a drought of M&A fees showed the difficulties it will face in delivering its first strategic revamp in a decade.

The British bank reported pretax profit for the January-March period of 2.277 billion pounds ($2.84 billion), down from 2.6 billion pounds a year ago and in line with the 2.2 billion pounds average of analysts' forecasts as compiled by the bank.

Barclays is bidding to restore investor faith in its universal banking business model, after years of share price underperformance, clashes with activists over the role of its investment bank, and management turnover.

The British bank said in a long-awaited strategy review on Feb. 20 it would invest in its high-returning domestic banking business, as well as axing 2 billion pounds of costs and ramping up payouts to shareholders.

Total income in its investment bank fell 7%, shy of expectations, as a strong performance in equities was more than offset by lower fixed income trading performance and weaker merger advisory fees.

Rival Deutsche Bank meanwhile posted a better-than-expected 10% increase in first-quarter profit, citing a bounceback in fixed-income trading and deal-making revenue at its investment banking division.

The British bank also said it had on Wednesday announced its Irish unit, which houses much of its European business, would sell an Italian retail mortgage book in line with aims to simplify its exposures.

The deal will conclude in the second quarter of this year, generate a pretax loss of around 225 million pounds and be neutral to the bank's capital levels, Barclays said.

($1 = 0.8017 pounds)