Barclays reels under pounds 1bn of bad debts

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The Independent Online
SIR JOHN QUINTON, chairman of Barclays Bank, yesterday warned that the recession could last two more years, as his bank reported a dramatic fall in half-year profits and more than pounds 1bn in bad-debt provisions.

Pre-tax profits at Barclays slumped to pounds 51m, an 87 per cent decline from pounds 378m in the same period last year.

The record pounds 1.07bn bad-debt charge, which includes heavy provisions for big-name property and construction firms, in effect wiped out most of Barclays' pounds 1.17bn operating profits.

Sir John called the results 'very disappointing'. He said: 'They reflect the high level of business failure and bad debt in the UK, and the accompanying plunge in property values, the severity of which was largely unforeseen.'

The economies of many other countries where Barclays operated were also weak, he said. Provisions in the second half of 1992 would remain high.

Barclays had to dip into reserves in order to maintain the interim dividend at 9.15p.

The pounds 1.07bn set aside for bad and doubtful debts compares with pounds 799m a year earlier. UK provisions accounted for the lion's share of bad debts, pounds 658m against pounds 436m a year ago.

Sir John admitted to bad lending decisions. 'Thirty to forty per cent of our bad debts come from poor lending, and the rest is from the recession,' he said.

Two corporate customers, thought to be the property developers Olympia & York and Heron, accounted for pounds 100m of provisions. Barclays is the biggest UK lender to City property firms. But provisions in retail and personal sectors also mounted.

Sir John explained that Barclays had halted new property lending in 1988 and focused on existing loans to 'sound' property companies. But as the recession carried on and property values fell, those companies continually drew on existing credit lines with Barclays and got into difficulties.

For the past 18 months, the bank has also been incurring pounds 1m per day in provisions on loans to small businesses.

Barclays also took an exceptional pounds 82m provision related to the sale of Barclays Bank of New York and other businesses.

Andrew Buxton, who takes over as executive chairman in December, denied suggestions that institutional shareholders were pressuring the bank to split the roles of chairman and chief executive.

One of the few positive features was a 6 per cent rise in income, which helped push operating profits up by 16 per cent. Costs were also held steady.

The UK bank made a pounds 79m pre-tax loss, compared with an pounds 80m profit a year ago. The plastic card division doubled profits to pounds 51m. Other UK operations lost pounds 102m. Profits in BZW, the investment bank restructured to include treasury and other businesses, fell 37 per cent to pounds 99m.

----------------------------------------------------------------- Table: HOW THE BANKS COMPARE ----------------------------------------------------------------- Half-year to June Pre-tax Provisions Cost/income profit (pounds m) ratio % (pounds m) Barclays 51 1,072 63.9 NatWest 211 864 65.9 HSBC/Midland 89 355 72.9 Abbey National 270 138 45.2 Lloyds 369 329 63.0 -----------------------------------------------------------------