Barclays profits jump 8% to almost £3bn

Author: By Kelly Macnamara, Press Association

Group pre-tax profits rose to £2.98 billion in the half year to June 30 as the
bank said it was “solidly profitable” in the period.

Barclays Capital – the firm’s investment banking division – posted a 100 per
cent increase in profits to £1.05 billion.

Meanwhile the retail banking arm saw profits down 61 per cent to £268 million
in a “challenging” economic climate.

Chief executive John Varley said: “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.”

Staff costs increased 36 per cent to £4.8 billion and the bank said this was
driven by a 32 per cent rise in salaries and incentive payments, primarily
in Barclays Capital. Barclays said this reflects the inclusion of the
acquired Lehman Brothers’ North American businesses.

The news comes after reports that executives at the division are in line for
pay and bonuses worth an average £250,000 for six months’ work.

Remuneration is a thorny issue for banks after the Government bail-outs of
last year and, although Barclays did not receive state aid, its policies
will be scrutinised for signs of a return to the old days of high risk and
big rewards.

Barclays Capital salvaged the investment banking business from the wreckage of
failed Lehman Brothers and its strong performance reflects the benefits of
the acquisition.

Mr Varley said: “Our strategy has helped us weather the crisis and we
want our employees, customers and shareholders alike to continue to benefit
from it over time.”

He expressed confidence that Barclays would remain profitable for the rest of
the year.

“The trends that lie behind our operating performance in the first half
of this year were again observable in July,” he said.

“We are realistic about just how difficult the environment is, and will
remain, but we are committed to delivering another year of solid
profitability through our continued emphasis on serving our customers and
clients.”

Barclays managed to shore up its finances in the crisis without a Government
bail-out.

The bank instead turned to Middle East investors for funding and has also
agreed the £8.2 billion sale of its Barclays Global Investors fund
management division.

Barclays’ shares fell to lows below 50p in the dark days of January, but have
recovered to trade around 300p as fears of state intervention passed.

Mr Varley said the group would not be making a decision about the level of
bonuses for staff until later this year.

He told the BBC Radio 4 Today programme: “The subject of compensation is
a hot topic and I understand that, and it is very important that we are
sensitive to the views of citizens and indeed central bankers like Mervyn
King on this subject.

“We do not make bonus payments at this point of the year. The year is not
over – there are five months to go. We will make our decisions about
variable compensation at the end of the year.

“When we do so, we will take guidance from the Financial Services
Authority… we will take guidance from the Walker review on governance…
so we are sensitised to this issue and we will behave responsibly.”

Barclays’ profits were in spite of a £4.5 billion write-down on impairments,
an increase of 86 per cent on a year earlier following further losses on
credit market exposures and charges on the deteriorating quality of loans.

Mr Varley said: “In some of our loan books we have seen the rate of
deterioration reducing and some signs of stabilisation.”

But he warned that the full scale of bad debts may take time to appear as the
recession took its toll on households and businesses.

“Unemployment has a lagging effect on bad debts but the rate of
deterioration is reducing,” he said.

The firm said small improvements were appearing in the UK, US and other parts
of its business.

Analyst forecasts of full-year write-downs reaching between £9 billion and
£9.6 billion, were described as “reasonable” estimates.

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