The bank slashed its massive provisions for bad debts, prompting a turnaround from a pounds 293m loss in the previous half-year and pounds 51m profit a year ago. The result also hinged on a robust performance by BZW, the investment bank, and increased operating profits, especially in the UK.
But the outlook was clouded by an unexpected pounds 285m loss on US businesses from which Barclays may pull out. It also revealed a pounds 47m loss in Europe due to increased bad debt provisions, especially in France. In the UK the bank shed 3,700 jobs at a cost of pounds 127m during the six months, in line with previously announced targets.
Barclays' executives, who have taken the heat from disgruntled shareholders and the media over the past year, were cautious but distinctly more upbeat than in March as they announced the figures.
Andrew Buxton, chief executive and chairman, said: 'I am pleased that we have returned to profitability. The 16 per cent increase in operating profit indicates that the actions we have taken in our business are providing positive benefits for our shareholders.'
The bank has overhauled risk management techniques and launched initiatives to cut costs and improve service in the UK bank.
After halving its final dividend at the end of last year the bank gave an interim dividend of 6.5p compared with 9.15p in the same period of 1992. The capital position strengthened.
Mr Buxton admitted: 'In the past we tried to do too much in too many areas.' Now the bank was prepared to get out of businesses that do not meet its goal of 15 per cent post-tax return on equity.
Bad debt provisions declined to an overall pounds 879m from heavy hits in the second half of last year on bad property and other corporate loans totalling pounds 1.3bn. They were down 5 per cent from pounds 938m a year ago.
BZW nearly doubled its pre-tax profits from last year to pounds 234m after leading a number of new bond and equity issues and taking advantage of volatility in financial markets. Dealing profits, before costs were subtracted, rose to pounds 384m from pounds 307m in the prior six months.
Banking profits before tax rebounded to pounds 407m during the six months in contrast to a pounds 297m loss in the previous six months and pounds 98m profit a year ago.
The domestic bank bounced back with a pounds 287m profit after losses of pounds 326m and pounds 118m, helped by the bank successfully maintaining domestic interest margins.
Barclays shares, which have advanced recently amid anticipation of a profits recovery, rose 8p in early trading yesterday. But the share price closed 4p lower after profit-taking at 498p.
Peter Toeman, banking analyst with Hoare Govett, said: 'I was quite encouraged by the results, and the domestic bad debts came down faster than we anticipated. I expect the shares to increase again.'
Mr Buxton warned that the factors hurting the bank's results since 1991 had not abated, and said provisions and loan losses on non-accruing loans would remain high in the second half of this year.
UK specific bad debts charges were pounds 657m after pounds 1.1bn in the preceding six months and pounds 825m a year ago. But new general provisions for potential problem debts leapt to pounds 801m from pounds 690m in the previous six months.
Individual domestic provisions above pounds 5m fell against large corporate customers in property, construction, retail and service sectors - previously Barclays' downfall. Smaller provisions remained high, however.
In Europe pounds 81m of provisions was taken, almost entirely against French property and corporate lending. US provisions rose 41 per cent to pounds 120m.
A review of Barclays' US business started last summer resulted in the bank identifying assets - including the BarclaysAmerica mortgage servicing business, non-performing and bad loans and commercial property loans - as 'unlikely to be in the long-term interest of the group'.
A general provision of pounds 108m was made against them and they are now managed by BZW in a separate unit.
Their fate has still to be decided, but the bank suggested that some were likely to be run down.
Peter Rodgers, page 25