Barclays prompts rally with capital reassurances

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The Independent Online

Barclays brought much-needed relief to the banking sector yesterday as it unveiled full details of its credit-crunch exposures and said it did not need to raise new capital.

The first of Britain's major lenders to report 2007 results led a rally in banking stocks as investors took heart from Barclays' confident statement and 10 per cent dividend increase.

Full-year pre-tax profits fell 1 per cent to £7.08bn as Britain's third-biggest bank wrote down £1.6bn on the value of assets hit by the credit crunch.

John Varley, Barclays' chief executive, said: "I feel keenly the disappointment our shareholders must feel about our performance in 2007, but there is no point in us feeling cowed by it. A world of uncertainty is a world of opportunity."

The writedown was £300m more than the bank had estimated in November. The relatively small increase relieved investors who had seen banks such as UBS announce massive extra losses in recent weeks.

Shares of Barclays and rivals have been battered over this period because investors have feared extra writedowns that could force banks to cut dividends or raise fresh capital.

Barclays' shares rose 3.7 per cent to 477p. Other gainers included Royal Bank of Scotland, which has also been the subject of capital concerns, and HBOS.

Mr Varley said: "Our year-end ratios are at levels at which we feel comfortable." He said the dividend increase and the recent completion of Barclays' £1.8bn share buy-back demonstrated the bank's confidence in its capital position.

The key tier-one ratio was 7.6 per cent under new Basel II standards, above Barclays' 7.25 per cent target.

Barclays Capital, the investment banking arm, increased profits by 5 per cent to £2.34bn, ahead of expectations. BarCap has been investors' main source of concern because it is a big player in the credit markets that crashed last summer.

BarCap's £1.6bn write-down was offset by a £658m fair value reduction in the value of the bank's own debt.

BNP Exane analysts said: "Assuming Barclays does not intend to purchase this debt in the market and then cancel it, this [the £658m] is extremely low quality trading income. We expected additional writedowns to come in at £400m and, judging by the low valuation multiples, the market feared it could be much worse."

Mr Varley hit back at critics who accused Barclays of taking light writedowns on sub-prime assets compared with US banks such as Merrill Lynch and Citigroup. "Risk is not generic," he said. "Don't assume that all the banks in the world are running identical risk. That is why the writedown experience of the players is variable."

Bob Diamond, who heads BarCap, said 2008 would be a challenging year for investment banking. But he said the investment bank's performance gave Barclays a "licence" to expand in the US, where banks such as Citigroup are reeling from bigger losses than Barclays'.

Mr Diamond said BarCap, Barclays Global Investors and his wealth management business could expand in the US. He added that BarCap could expand in commodities to take on Morgan Stanley and Goldman Sachs, as well as derivatives and prime brokerage.

Mr Diamond said three things were needed for the markets to recover: full disclosure by UK and European banks in their full-year results, clarity about the position of the monoline bond insurers, and confidence in liquidity. He called on central bankers to renew the co-ordinated injection of liquidity into the financial system that helped ease the markets in December. "Some of that liquidity has dripped away and that is a cause of concern to the market as a whole. Of course, we would welcome it if there were to be more such action."

Barclays predicted a slowdown in the US and the UK, but Mr Diamond said "early and bold" action by the US Federal Reserve would ensure the US economy rebounded quickly.

Barclays revealed £1.3bn of exposure to the monolines, whose credit ratings hang in the balance after bonds they insured crashed.