[2008-08-08]  Barclays’ profits fall by a third
First-half pre-tax profits at Barclays fell by a third to £2,75 billion, the bank revealed yesterday, as it took impairment charges and credit provisions totalling £2,45 billion, up from £959 million.

John Varley, chief executive of the bank, which last month raised £4,5 billion in fresh capital from shareholders, said the profit fall was "acutely disappointing" and "our shareholders have had to endure a lot" with the falling share price.

Analysts’ predictions for the figures had varied widely, with one as low as £2,2 billion and one at nearly £3 billion, with an average around £2,6 billion.

Mr Varley warned that it would be wrong "to suggest that the market conditions over the foreseeable future will be anything other than tough".

Economies around the world were slowing and "we must remain very vigilant to managing risk".

Of the £2,45 billion impairment charges, £1,11 billion related to US subprime mortgages and other credit market exposures. Excluding these, impairment charges increased 40 percent.

Mr Varley said credit market writedowns "stabilised in the second quarter" at around £1 billion, the same as in the first quarter.

Some analysts have questioned whether Barclays has been sufficiently prudent in taking provisions, but Mr Varley said: "We are completely confident about the rigour we have applied to the marks" in taking writedowns.

He said the bank had reduced its credit market exposures by £8 billion in the first half.

Chris Lucas, finance director, said that while the bank had largely reflected market movements in quantifying the writedowns, it had taken a more conservative stance against its exposure to monoline insurers.

"We’ve been more forward looking in our mark downs," he said.

The biggest divisional profit fall came at Barclays Capital, the investment banking arm, where profits before tax dropped 68 percent to £524 million after losses of £1,98 billion due to credit market dislocation, of which £871 million was taken against income.

Barclays partly offset the losses by booking a gain of £852 million on the value of notes issued by BarCap.

Bob Diamond, head of BarCap, said that "issues around liquidity and the functioning of the money markets are now behind us." Looking forward, he said, concerns centred around slowing economies and imbalances in supply and demand for some commodities, notably oil.

"It’s as tough an environment as I have seen in 25 years in the business," Mr Diamond said. We are not going back to markets of 2005 and 2006 — it will remain challenging for the rest of 2008 and throughout 2009."
Source: (C) THE HERALD 2008