Barclays stuns City with 242m pounds loss

BARCLAYS BANK yesterday laid bare the full catastrophe of its property lending book, writing off a record pounds 2.6bn of bad debts for last year and slashing its final dividend in half.

The pre-tax loss of pounds 242m was the first in the history of the bank, which was founded by Quaker East Anglian families in the late 17th century. Heavy debts on corporate loans to UK customers - spearheaded by the property and construction sectors - dragged the bank into the red. In 1991, Barclays made a pounds 533m pre-tax profit despite bad debt provisions of pounds 1.8bn.

The figures, the worst in British banking history, stunned the City, which had generally expected a much smaller loss and a maintained dividend. The reaction was brutal. Barclays shares slumped by 41p to 392p, wiping pounds 659m off the bank's market capitalisation.

'We were expecting a loss of pounds 120m, but we underestimated operating profits as well as bad debts. Barclays has pounds 9bn of problem loans of one description or other,' Martin Cross of Warburg Securities said.

The results bore particularly bad comparision with the other big clearers, all of whom showed healthy improvements on their bottom-line profits last year.

The bank's gloomy outlook on prospects for 1993 further shook market analysts, who slashed their profit estimates for the current year by about pounds 200m to pounds 250m- pounds 300m.

At a tense news conference, Andrew Buxton, the bank's much- criticised chairman and chief executive, said he would be taking a 'significant' salary cut, closing 350 Barclays branches in the UK, and axing 9,000 jobs as previously announced.

He admitted that poor lending decisions, along with the recession, were responsible for the huge bad debts, but refused to assign blame for the mistakes to anyone in current management, including himself.

'Obviously there were people who set policies in the past, but I am not going to discuss individuals. Some careers have suffered,' he said.

Pressed repeatedly on when or how the promised splitting of his roles of chairman and chief executive would take place, Mr Buxton said only: 'There will obviously be a change in my responsibilities, but that was announced last December.'

Mr Buxton said the bank had taken action to improve credit quality and risk management. But he added: 'The loss of interest income and the prospect of continuing high bad debt provisions may be expected to have a significant impact on the group's profitability in 1993.'

Of the pounds 2.3bn of specific provisions, pounds 1.9bn were racked up in the UK. Apart from property and construction, the hotel and retailing sectors presented the bank with severe repayment problems. Bad debts also mounted up in overseas operations, with pounds 145m being written off in Europe and pounds 183m in North America.

Before the provisions, group operating profits rose by 18 per cent. The UK domestic bank made a loss of pounds 414m, even though lending and transaction fees were increased significantly.

BZW, the investment and securities division, increased profits by 13 per cent to pounds 241m. In common with the other main clearing banks, Barclays had a successful year in the volatile foreign exchange and money markets.

For US regulatory purposes, the bank identified a jump in potential problem loans around the world to pounds 2.3bn at the end of 1992 from pounds 1.6bn a year earlier. The bank released pounds 20m of Third World debt provisions after a pounds 211m write-back in 1991.

The cut in the final dividend from 12p to 6p reduced the total payment for the year by 28 per cent to 15.15p from 21.15p.

Mr Buxton said the 1992 loss meant that the bank had paid dividends from reserves for two successive years. To continue to do so would deplete the bank's capital too severely. He expected that the bank should be able to sustain the reduced dividend.

Leading article, page 20

View from City Road, page 27

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