Bank tops index as profits surge

Nov 28 2007 by Iain Laing, The Journal

BANKING group Barclays has said it has seen no signs of rising debt levels, despite consumers coming under pressure from interest rate hikes.

The bank’s debt charges for unsecured credit “continued to improve” in UK banking, while mortgage charges were “negligible”.

In a reassuring update, Barclays added that debt charges also improved at its Barclaycard credit card business during the three months to September.

It said Barclaycard profits “grew strongly” in the third quarter, adding that its UK banking division was on course to meet full-year targets after taking settlement of overdraft fees into account.

The company, which wrote off £1.3bn from its investment banking business two weeks ago following the turmoil in credit markets, said that earnings this year would be “broadly in line” with market consensus. Barclays made profits of £7.14bn last year, although market analysts estimate this will fall slightly to £7.1bn in 2007.

The bank said its UK retail banking operation had seen “good growth” in mortgages and customer deposits. Profits also improved at its business banking division, which saw slowing growth in bad debt charges.

The group added that its Barclaycard business was on track to make profits in the US this year, despite the group’s other problems across the Atlantic on exposure to high-risk “sub-prime” US mortgages.

Income growth from its overseas business was “very strong” despite lower pre-tax profits from South African bank Absa due to the weakening of the rand against the pound.

Chief executive John Varley said: “The diversification of our profits in recent years, together with the investments we have made in businesses both inside and outside the UK, is serving us well in 2007.”

Barclays made around 50% of its profits from international operations during the first half of the year.

Mr Varley added that the group’s investment banking business had been “resilient in the face of turbulent market conditions” during the second half of the year.

Barclays lost out to rival Royal Bank of Scotland in a takeover battle for Dutch bank ABN Amro in October.

Barclays’ shares advanced more than 3% following the update, making the bank the FTSE 100 Index’s top performer.

Collins Stewart analyst Alex Potter said the “trends were good and as expected”.

He added that Barclays looked a good bet for investors despite the likelihood of further volatility in the share price in the lead-up to the group’s final results in February.