Barclays profits down by one third
British bank Barclays reported an “acutely disappointing” 33% profit slump today after more hefty write-downs and warned that it expected tough conditions to continue through next year.
The group suffered £2bn (€2.5bn) of net credit crunch-related write-offs during the six months to June 30, dragging first half pre-tax profits for the period down to £2.75bn (€3.4bn).
Profits at its investment banking arm were worst hit, diving 68% to £524m (€662.5m). The figures would have been £852m (€1.1bn) worse but for a one-off accounting gain.
Barclays, which has 11.5 million UK customer bank accounts, also said bad debt charges increased 40% to £1.3bn (€1.6bn) during the period.
The group’s president Bob Diamond, who is also in charge of the investment banking division, said he thought the liquidity crisis was “behind us” but that the current environment remained the toughest he had seen in 25 years.
“We are not going back to markets like 2005 and 2006,” he said. “We are going to be in more challenging markets for the balance of 2008 and throughout 2009.”
Barclays group chief executive John Varley said: “Although I take some comfort from our relative performance in managing our risks and in generating income, a decline in profit of 33% is acutely disappointing.”
He also expressed regret for the group’s poor share price, which is just over half of what it was this time a year ago.
“Our shareholders have had to endure a lot. We are, and we will be, working as hard as we can to create the conditions that enable a higher price to be placed on our shares over time.”
Shares in the bank rose 5% today as the profits and write-downs were in line with analyst estimates.
Mr Varley pointed to the group’s stronger balance sheet thanks to last month’s £4.5bn (€5.6bn) share issue, most of which was taken up by wealthy Far Eastern and Middle Eastern investment groups.
As a result of the move the bank’s equity tier 1 ratio – which compares share capital with risk-weighted assets and is scrutinised by regulators and investors - improved from around 5% at the end of June to 6.3%. The bank’s target is 5.25%.
Mr Varley said: “It would be wrong in this review to suggest that the market conditions over the foreseeable future will be anything other than tough, not least because we are now seeing the impact of slowing economies around the world and that means that we must remain very vigilant to managing risk.”
Barclays said defaults among its 768,000 UK mortgage accounts remained “very low” at 0.97% – up from 0.91% – and there was only a “slight” increase in retail banking bad debts.
However, the group said there were “some signs of strain” at its UK commercial banking operation, with more cases being dealt with by recovery teams.
The group also suffered “significant growth” in impairment charges relating to international retail and commercial banking businesses – tripling across Western Europe and more than quadrupling in its emerging markets.
At the company’s credit card operation Barclaycard – which has 11.9 million UK customers – bad debt charges increased 10%, but profits were up 30% thanks to big increases in the amount of overseas business.
Mr Varley said the group had been “conservative” in the level of write-downs applied.
He said: “We are completely confident about the rigour we have applied to the (mark downs).”
Richard Hunter, head of UK equities at Hargreaves Lansdown, said: “All matters are relative in the banking sector at present and, despite a 33% dip in half-year profits, the profit figure was actually towards the top end of estimates.
“The company’s comments underline the need for vigilance and prudence with regard to the ongoing management of risk, but as time goes on the negative news is showing some signs of abating.”
