Investment banking sends Barclays profits soaring to £3.9bn

Barclays hits back at the Government as its latest bumper profits come with caveats attached.

Last Updated: 31 Aug 2010

Another day, another forecast-smashing set of numbers from a British bank: today it was Barclays’ turn to report a £3.9bn profit, up 44%, driven largely by a drop in bad debts and a strong showing from Barclays Capital, its investment banking arm. However, there was some cause for concern – notably the fact that BarCap’s numbers went backwards in the second quarter, which it’s blaming on the US and UK political shenanigans. And boss John Varley was quick to point out that further Government meddling could scupper Barclays’ recovery in the coming years, too…

It’s an impressive number from Barclays (even if it does include some one-off gains). Like the other big banks, it’s benefited from a big fall in bad debts: its write-offs were down by a third on last year to just over £3bn, which makes a huge difference to the bottom line. And in response to the ongoing criticism that it’s not lending enough money, Varley said Barclays had shelled out £18bn in loans during the period.  

The one thing that seems to have alarmed the City today is that Barclays’s profits are still heavily reliant on BarCap, which contributed a whopping £3.4bn – more than three times as much as last year – while Barclaycard, Western Europe retail banking and its fund management arm were all down on 2009. And the bad news is that BarCap’s income was actually quite a lot lower than last year, once you strip out some one-off gains on its own credit and other debts: about 30% lower, to be precise, while the second quarter was 15% down on the first.

Investment banking supremo Bob Diamond suggested all the uncertainty engendered by the UK election results and all these regulatory threats was putting people off giving him massive wads of ca-... sorry, was making people less risk-averse. And although he reckons things picked up a bit in July, it’s nonetheless true that the politicians are Barclays’ biggest problem at the moment. Hence why Varley attacked the rumoured plans to break up retail and investment banks today, arguing that ‘universal’ banks like Barclays were better placed to withstand shocks. He also warned against imposing too many restraints on funding – if you make banks risk-free, he said, they won’t be able to lend and thus facilitate economic activity. Which is true enough, although there’s clearly a middle ground between the two extremes.

And after Standard Chartered warned yesterday that it may move out of the City if the imminent regulatory changes prove too painful, Varley also stressed the need for a ‘broadly level playing field’. The UK ‘will only thrive if it can compete on broadly equal terms’, he said. It’s a reminder that the Coalition faces a difficult balancing act, if it wants to hammer the bankers without destroying one of our most profitable industries.

In today's bulletin:
Investment banking sends Barclays profits soaring to £3.9bn
Warner Brothers wants to build a big Shed in the UK
Deluded managers misjudge their strengths
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