Barclays makes $5b first-half profit
Pre-tax profits for the first six months came in at £2.98bn ($5bn), although this was slightly below analysts’ forecasts.
Profits at its investment bank Barclays Capital doubled, but those at its UK retail banking arm more than halved.
HSBC reported half-year profits of $5bn, although this was about half what it made in the same period a year ago.
By midday, shares in Barclays were up 9%, while HSBC had climbed 6.7%.
The BBC’s business editor Robert Peston says the most resonant measure of how Barclays has performed can be seen in the average pay of staff at its investment bank, which was almost exactly £100,000 for just the first six months of the year.
Decisions about the sensitive issue of bonuses would not be made until the end of the year, however.
Rising bad debts
Total bad debts, across all parts of Barclays’ international businesses, rose from £2.45bn to £4.56bn.
HSBC was also hit by rising bad debts in the US, Europe and Asia, forcing it to write-off $13.9bn – 39% more than the same period in 2008.
HSBC is currently in the process of closing its US consumer lending business, which suffered heavy losses from mortgages which went unpaid.
Barclays and HSBC are the first major UK banks to report half-year figures, with Lloyds Banking Group and Royal Bank of Scotland reporting later in the week.
Investment banking ‘back’
Profits at its UK retail banking division fell 61% to £268m, from £690m a year ago.
But profits at Barclays Capital rose to £1.05bn, from £524m a year ago.
Ralph Silva, banking analyst at Tower Group, said that not accepting government money would have contributed to Barclays Capital doing so well.
“Investment banking is back. If you are a big company you are going to gravitate towards the banks that have not received government funds,” he said.
But, although Barclays has not received a direct injection of capital by taxpayers, it has received significant guarantees from the public sector.
It benefits from a promise that taxpayers will never let it fail, because it would be too damaging to the economy.
Liberal Democrat spokesperson Vince Cable said: “The worry from the British taxpayers’ point of view is that ultimately these [investment banking] operations are underwritten by the taxpayer.”
“Its fine when they make money. But when they lose money they lose big-time and the taxpayer picks up the bill as we did last year.”
Barclays said it had gained more investment banking clients thanks to the acquisition of some Lehman Brothers businesses in 2008.
The addition of some of the Lehman businesses also “increased significantly” Barclays’ presence in the US, the bank said.
The US now accounts for about 40% of its income.
Conservative MP Michael Fallon, who is also on the Treasury Select Committee, told the BBC: “It is disappointing to see that so much of Barclays’ effort now is overseas”.
He said banks delivered well in good times, boosting tax revenues for the government and providing jobs adding, “there is nothing wrong with paying the right money to attract the right talent.”
“But the difficulty is when these banks get into trouble …they are bailed out effectively and don’t suffer the pain other businesses suffer in the bad times,” he said.
Barclays chief executive John Varley was upbeat on the bank’s prospects for the rest of the year.
“The investments we have made, particularly in our international businesses, are driving very strong income performance and allowing us to absorb the consequences of the economic downturn,” he said.
“Our goal for 2009 is very clear: we seek to deliver another year of solid profitability. Our first half performance is a good start to this.”
Richard Hunter, head of UK equities at Hargreaves Lansdown, said the figures represent “a profitable performance against a difficult economic backdrop”.
“Investors are beginning to appreciate the progress Barclays has made and the consensus is that the shares are a cautious buy,” he said.
Bad debts rise
Barclays’ High Street operations recorded a 63% increase in bad debts, from £288m in the first half of last year to £469m in the first half of 2009.
The bank said this amounted to just under 1% of its total lending.
Bad debts among mortgage customers remained “relatively low” at £35m, although this was far higher than the figure of just £1m recorded a year ago.
But the recession has led to a near doubling of bad debts among Barclaycard’s credit card customers.
The amount of credit card borrowing that had been written off as a result of defaulting customers rose by 92% to £915m, with the recession in the US behind much of the rise.