Barclays counts cost of ‘worst time in 25 years’

Aug 8 2008 by Iain Laing, The Journal

BARCLAYS has reported an “acutely disappointing” 33% profit slump after more hefty write-downs and warned that it expected tough conditions to continue through next year.

The group suffered £2bn of net credit crunch write-offs in the six months to June 30, dragging first-half pre-tax profits down to £2.75bn.

Profits at its investment banking arm were worst hit, diving 68% to £524m. The figures would have been £852m worse but for a one-off accounting gain. Barclays, which has 11.5 million UK customer bank accounts, also said bad debt charges had increased 40% to £1.3bn.

The group’s president Bob Diamond, who is also in charge of the investment banking division, said he thought the liquidity crisis was “behind us” but the current environment remained the toughest he had seen in 25 years.

“We are not going back to markets like 2005 and 2006,” he said. “We are going to be in more challenging markets for the balance of 2008 and throughout 2009.”

Barclays group chief executive John Varley said: “Although I take some comfort from our relative performance in managing our risks and in generating income, a decline in profit of 33% is acutely disappointing.”

He also expressed regret for the group’s poor share price, which is just over half the figure of a year ago.

“Our shareholders have had to endure a lot. We are, and we will be, working as hard as we can to create the conditions that enable a higher price to be placed on our shares over time.”

Mr Varley pointed to the group’s stronger balance sheet thanks to last month’s £4.5bn share issue, most of which was taken up by Far Eastern and Middle Eastern investment groups.

Mr Varley said: “It would be wrong in this review to suggest that the market conditions over the foreseeable future will be anything other than tough, not least because we are now seeing the impact of slowing economies around the world and that means that we must remain very vigilant to managing risk.”

Hargreaves Lansdown head of UK equities Richard Hunter said: “All matters are relative in the banking sector at present and, despite a 33% dip in half-year profits, the profit figure was actually towards the top end of estimates.

“The company’s comments underline the need for vigilance and prudence with regard to the ongoing management of risk, but as time goes on, the negative news is showing some signs of abating.”