BarCap boost triggers profits leap for Barclays

Barclays today kept up this week's flow of good news from banks with a 44% jump in first-half profits to £3.95 billion.

The forecast-busting profit growth was driven by lower bad debt charges and strong investment bank profits. Barclays Capital profit soared from £1 billion to £3.4 billion. But second-quarter revenues and profits from BarCap showed a significant slowdown on the first quarter.

Barclays shares dropped 9½p to 330¼p on the news.
Chief executive John Varley said that BarCap's revenues, which dropped 15% between the first and second quarters had been hit by "the storm in the eurozone" with activity well down in May and June.

He said the first two weeks of July had been similar but there had been a noted pick up in the last fortnight and added that BarCap's forward order book had "never been bigger". BarCap will take the vast bulk of the £1.4 billion of bonus payment declared by Barclays so far this year which is an 18% increase on the same time last year.

Varley also joined his rivals in refuting political claims from the Government that banks have stopped lending to homebuyers and business. He said the bank had lent a new net £18 billion in the first half which is in line with the £35 billion it lent in the whole of 2009.

He added: "I don't think the facts support the contention that I read about: that UK banks have stopped lending. Barclays is wide open for business. This is a very good time to lend and if we see applications from creditworthy customers we will support them."

He said that the volume of applications for credit had "fallen steadily for the last 15 months" while the proportion of successful applications had risen from 80% to "almost 90%".

The fall in impairment charges was smaller than at some of the banks which already reported this week. Overall they fell 32% to £3 billion with a fall in BarCap provisions partly offset by a sharp rise in Spanish provisions of £433 million.

Varley admitted: "The Spanish economy deteriorated more sharply than we had expected and we were hit particularly by falling commercial properties. But you have to realise that any bank is a portfolio of risks and we expect Spanish impairments to reduce."

UK retail banking profits improved strongly as customers' bad debts fell. But corporate banking produced a loss due to Continental Europe, and Barclaycard profits fell 15% on stricter US regulations. Varley said that across the bank the picture for July had been pretty consistent with the first half which he described as "resilient".

Barclays announced a second-quarter dividend of 1p to match the first quarter's. The same payment is likely for the third quarter with the final pay-out being decided in March at the full-year results.