2nd UPDATE: Barclays 1st Half Net Profit +10% On Invest Bank; Shares Up
August 03 2009 - 7:30AM
Dow Jones News
U.K. bank Barclays PLC (BCS) Monday posted a 10% rise in
first-half net profit as it benefited from its purchase last year
of Lehman Brothers' North American investment banking assets, which
helped boost the performance of its own investment bank, Barclays
Capital.
The strong performance from investment banking offset higher
credit-market provisions and weaker performance in its retail arm,
and Barclays said economic slowdowns and rising unemployment in the
countries it operates in would make the rest of the year
challenging.
Net profit for the six months ended June 30 was GBP1.89 billion,
up from GBP1.72 billion in the same period last year. The result
was lower than the GBP1.96 billion average net profit expected by
five analysts polled by Dow Jones Newswires.
Barclays became the latest global bank to report higher earnings
due to investment banking operations. Credit Suisse AG (CS),
Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and
Deutsche Bank AG (DB) also said investment banking units help
solidify first-half performance.
Barclays said it expects the rest of 2009 to be challenging,
"with continuing recession in many of the economies in which we are
represented."
"The environment has remained very difficult in 2009 as a
consequence of the onset during 2008 of economic recession in most
parts of the world in which we operate. But we were nonetheless
solidly profitable," Chief Executive John Varley said.
The biggest chunk, or 35%, of pretax profits came from Barclays
Capital, which has boosted revenue this year from higher customer
volumes in areas including interest rates and currencies, and
capital markets activity such as underwriting bond sales.
But as the investment bank bounced back from a weak 2008,
bread-and-butter lending to retail and commercial customers was hit
by rising impairments on corporate and consumer loans.
The results were helped by the acquisition assets acquired from
Lehman Brothers, said Barclays President Robert Diamond, who heads
Barclays' investment banking and investment management division,
including BarCap.
He said BarCap's earnings are sustainable in the near term, due
in part to possible investment opportunities in key markets like
Asia, China, Germany, France and the U.S., which have recently
shown some signs of economic growth.
"If there are signs of growth, which we think there are, the
consolidation in investment banking, with fewer and stronger
participants, has benefited Barclays Capital very much," he told
Dow Jones Newswires.
Group pretax profit, a closely watched figure among U.K.
analysts, was GBP2.98 billion for the half, up 8% from GBP2.75
billion a year earlier, but lower than the GBP3.6 billion average
forecast by six analysts.
Barclays shares have doubled this year as concerns about further
bank collapses and a prolonged recession receded. U.S. banks'
strong earnings last month, driven by investment banking, raised
expectations that Barclays would be a beneficiary of market
activity.
The bank isn't paying dividends in the first half. In the first
half of last year, it paid 11.5 pence a share. It said it intends
to resume paying dividends before the end of the year.
At 1055 GMT, Barclays shares were up 8.1% at 327 pence, while
the FTSE 100 was up 1.3%.
Oriel Securities analyst Mike Trippit said Barclays posted
"reasonably strong numbers," helped by a good performance by
BarCap, noting that Barclays' 37% increase in total revenue to
GBP16.25 billion allowed it to absorb rising costs and bad
debts.
Shore Capital analysts said Barclays gave "a decent update" and
said "strong balance-sheet management" was a key positive. It said
the pretax profit was slightly ahead its GBP2.8 billion forecast.
Shore Capital kept its buy rating on the stock.
At a briefing, Varley said the bank is witnessing some signs
that the rate of growth of its bad debts is slowing.
"In some of our loan books, we've seen the rate of deterioration
reducing and some signs of stabilization," Varley said. "I don't
want to overstate it because if you think about unemployment, for
example, unemployment will rise in many of the economies where we
do business and unemployment has a lagging effect on bad debts. But
the rate of deterioration has moderated."
The bank's impairment charges and other credit provisions in the
first half rose to GBP4.56 billion from GBP2.45 billion a year
earlier. The result was higher than the GBP4.32 billion average
expected by analysts.
Company Web site: http://www.barclays.com
-By Vladimir Guevarra, Dow Jones Newswires; +44 (0)20 7842 9486;
vladimir guevarra@dowjones.com
(Ishaq Siddiqi and Margot Patrick contributed to this
article.)