Barclays half-year profits rise 44% to £3.9bn

Barclays today notched a 44% hike in half-year profits to £3.9 billion as plunging bad debts offset a slowdown in its star investment banking arm.

Figures revealed that sharply lower write-downs helped it deliver £3.4 billion of profits in the Barclays Capital division - more than 80% of its overall profits haul.

Barclays said it set aside another £1.7 billion in bonuses for staff across the bank, or £1.4 billion excluding money deferred from previous years - up 18% year-on-year.

But the BarCap division was hit by a "sovereign debt storm" in the second quarter, according to the group.

BarCap's top line income was down by almost a third, while it said trading revenues were 15% lower in the second quarter compared with the previous three months.

Shares eased back 3% as investors reacted to the BarCap slowdown and also looked to take profits after a month-long rally that has seen the stock rise by around 30%.

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said: "The reliance on the investment banking operation, where progress has slowed, continues to cast something of a shadow over the shares."

But he added: "In all, this is a robust performance given a difficult first half of the year."

Its results keep up the momentum of a strong first half for UK banks as the sector makes a strong recovery from the financial crisis.

On Wednesday, Lloyds Banking Group returned to the black with pre-tax profits of £1.6 billion and Royal Bank of Scotland is also expected to have clawed its way out of the red in the first six months of the year.

But the sector's profits cheer is likely to fuel anger over lending levels to businesses, as banks come under attack for failing to ease the flow of credit.

Barclays joined peers in refuting claims they are making it harder to borrow, saying it lent £18 billion to households and businesses in the UK.

But on a net basis - stripping out repayments - lending to businesses with turnover of up to £5 million rose only slightly since the end of 2009 and remained flat for medium-sized firms in a sign that companies continue to pay back at a faster rate than they are borrowing.

Barclays chief executive John Varley claimed the bank was approving more loans than in 2009 - with an 85% approval rate versus 80%.

He said that, despite criticisms levelled at banks over lending, "the facts that we have seen paint a very different picture".

"Loan applications have fallen steadily while approval rates - having been high in 2008 and 2009 - have gone higher in 2010," he said.

The blue-chip banking giant said on an underlying basis, with gains on the value of its own debt stripped out, first half pre-tax profits rose 22% to £3 billion.

On the same basis, BarCap's underlying profits stood at £2.5 billion, up 31% year-on-year.

The figures come after bad debt charges across the group plunged 32%, with a steep drop in BarCap's credit market write-downs at £65 million against £3.5 billion a year earlier.

Bob Diamond - BarCap boss and president of Barclays - also signalled a better outlook for trading revenues.

He said while BarCap saw a tough May and June, conditions had improved in July.

"We expect some of the clouds hanging over the market to be removed," said Mr Diamond.

BarCap's pay-to-income ratio was 42%, although it said on an underlying basis the ratio fell slightly year on year.

Barclays also said salary costs rose 29% across the business.

Profits in the UK retail banking business rose to £504 million, helped again by easing bad debts.

The division said income remained broadly flat during the first half as record-low interest rates took their toll on margins.

It said the number of UK savings accounts increased by more than one million to 14.1 million, with deposits up 11%.

In the Barclaycard business, results stalled as cautious consumers chose to pay down unsecured debts, according to the bank.

The number of customers fell 7% in the UK, while average outstanding balances also dipped to £10.6 billion.