Barclays shows us the money

Barclays' shares have surged after telling shareholders that it's strong enough to absorb an £8bn loss...

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Last Updated: 31 Aug 2010

Barclays has taken the unusual step of writing an open letter to its shareholders, after a torrid week in which its shares lost around half of their value. In today’s letter, the bank said it was expecting to beat its £5.3bn profit forecast for 2008, as ‘record income levels’ absorbed an £8bn write-down at its investment banking arm Barclays Capital. It’s also going to bring its full-year results forward by eight days to February 9, when it will come clean on the precise state of its finances (including details of those losses). Judging by the 40% bounce in its share price this morning, the tactic seems to have had the desired effect...

Barclays was forced into action after suffering nine consecutive days of trading losses, during which its share price plummeted by a whopping 72%. CEO John Varley has already tried to reassure the market once, but failed miserably to halt the slide – hence today’s letter, which has been co-signed by Varley and chairman Marcus Agius. Barclays, they said, was ‘well funded’ (with reserves of £36bn) and was expecting to make a full-year profit that was ‘well ahead’ of the forecasted £5.3bn.

Given that its value at the close on Friday was a measly £4.3bn, you can see why they were a bit miffed. The market appears to think that Barclays is being a tad optimistic about the strength of its business - but Varley and Agius insisted that the strength of its retail and commercial banking, plus its investment and wealth management arms, were helping it to weather the storm. ‘Although we have been heavily impacted by the credit crunch, our income generation was at a record level in 2008 and has enabled us to withstand this impact,’ they huffed today.

Barclays has so far declined to take any additional capital from the Government, preferring a private fundraising from some Middle Eastern investors (much to the disgust of MP Vince Cable, who described the deal as ‘a scandal of mammoth proportions’). However, it said today that it may take advantage of the Treasury’s new asset insurance scheme, while (not surprisingly) it also sounded keen on the proposal to temporarily reduce the banks’ capital requirements. Both of these moves would presumably make investors a little less nervous about the state of the bank's balance sheet.

To put the cherry on top, Barclays was even pretty bullish about current trading, suggesting that ‘customer and client activity levels have been high’ so far in 2009, even in the beleaguered BarCap (thanks partly to the bits it scavenged from the carcass of Lehman Bros). And perhaps it’s this bit of good news that has reassured investors: Barclays’ share price is currently up about 43%. But with two weeks until the results, there’s plenty of time for those rumours to start circulating again...


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Barclays shows us the money
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