Barclays bounces back after £6bn profit

Barclays has surprised the market with a healthy 2008 profit - but it's still very much in the firing line...

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Last Updated: 31 Aug 2010

Barclays said today that it made pre-tax profits of £6.1bn last year – ahead of forecasts and only 14% less than 2007, despite £8bn of write-downs against the value of its dodgy debts. After a year in which so many banks hit the buffers, this has to count as a pretty respectable showing, and it’s certainly given the bank’s battered share price a healthy lift this morning. But the picture may not be as rosy as it first appears – and as Barclays considers whether to tap into the Government’s new insurance scheme, it’s not going to find itself out of the limelight any time soon...

It’s true that the top-line figure was pretty impressive – for a bank to make a £6.1bn profit in the current climate is not to be sniffed at, and it rather makes a mockery of the bank’s current market value of about £9bn. However, on closer inspection this figure has been boosted by some one-off gains – for example, the only reason that Barclays Capital (the investment banking arm) finished the year in the black was because of the acquisition of Lehman’s US assets, which boosted profits by £2.3bn (and could turn out to be cracking deal). It also raised about £600m by flogging its closed life portfolio, and by selling shares in Visa’s IPO (plus some others in Mastercard). And its credit market losses were offset slightly by a fall in the value of its own debts.

Nonetheless, Barclays’ retail and commercial arm seems in good shape, with profits climbing a healthy 6% to £4.4bn. And CEO John Varley suggested that credit market write-downs would be lower in 2009, even if there are likely to be continued losses from borrowers defaulting on their loans. So despite the bank scrapping its dividend (at least until the second half of this year), there was some good news for investors today. Barclays shares were up more than 10% at one stage this morning – although it’s still trading at a measly one-and-a-half times last year’s earnings, which doesn’t say much for the market’s confidence in the bank (or perhaps, banks more generally).

Varley has also been getting a grilling about everyone’s favourite issue at the moment: excessive bonuses. He said today that Barclays’s bonus pool was 48% lower than last year (and even lower in BarCap and its fund management arm), and has tried to pre-empt the Government’s latest investigations by launching his own internal review into pay structures at the bank. But he’s likely to come under even greater pressure if, as expected, Barclays takes advantage of the Government’s new asset insurance scheme – which is likely to come with strings attached.

Still, at least today’s results show that Barclays has apparently side-stepped the worst of the banking ordure. Hopefully Varley can keep this up in 2009, and save the taxpayer a few quid...

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