Barclays said this morning that it had written off about £2bn against bad debts related to the credit crunch in the first half of 2008, sending its profits tumbling by 33% to £2.75bn. Its investment banking arm Barclays Capital was predictably the worst affected division, with profits down 68% to £524m. CEO John Varley described the results as ‘acutely disappointing’ – and warned that Barclays wasn’t out of the woods yet: ‘It may take quite some time for volumes to be restored to those we have seen in the past,’ he said today.
Not surprisingly, Varley said market conditions in the last 12 months have been ‘as difficult as we have experienced in many years’. On top of the £2bn losses in investment banking, Barclays’ fund management arm also suffered a 32% profit drop as the world’s stock markets went south, while it also took a hit on the failure of some of its hedge funds and loans related to the Spanish property market. All in all, its bad debts totalled £2.4bn, about 1.5 times more than last year.
On the other hand, although 33% is a sizeable slump, it’s not as bad as analysts feared. In fact, given that investment banking has been Barclays’ biggest profit driver in the last few years, it’s slightly surprising that the group has fared as ‘well’ as it has. Today’s results suggest it may have weathered the storm better than UK rivals like HBOS and RBS, not to mention Wall Street giants like Merrill Lynch.
And some of Barclays’ business units appear be doing rather nicely, thank you. In its UK retail banking division, profits were up 7% to £690m, while its share of the new mortgage market has actually jumped from 6% to 26% (and it’s being conservative too – the average value of these loans is just 51% of the value of the properties concerned). As other lenders retreat from the market, Barclays is clearly benefiting from being one of the few providers with cash in the bank. And just to prove that us Brits have really learned our lessons about racking up credit card debts, Barclaycard booked a 30% increase in profits to £388m.
Not everyone’s convinced – some analysts are arguing that Barclays has been less stringent in marking down the value of its ropey assets than some of its competitors. But with a £4.5bn fundraising (largely from sovereign wealth funds) successfully completed, and its balance sheet freshly bolstered (which could fund possible expansion), Barclays does have some cause for optimism for the rest of this year. And it could have been worse - it could have won the battle for ABN AMRO...
In today's bulletin:
Bank plays it safe despite further housing falls
Barclays surprises despite profit slump
Is a woman's place in the home?
City women lagging behind on pay
Whole lot of pain for Whole Foods