Barclays reveals profits slump

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The Independent Online

Barclays today revealed a 33-per-cent first-half profits slump as the bank suffered £2.8 billion of credit crunch write-downs.

The group posted £2.75 billion of pre-tax profits for the six months to June 30 after racking up another £1.1 billion of credit crunch impairments on top of the £1.7 billion reported during the first three months.

Barclays chief executive John Varley said the group had experienced "significant" write-downs and that

Barclays said excluding sub-prime related charges, its bad debt charges increased 40 per cent during the period.

The group's total for such impairment charges and credit provisions was £2.45 billion during the first half, up from £959 million a year ago.

While write offs among its UK mortgage book remained "very low", and increased slightly at the UK's retail banking arm, Barclays said it suffered "significant growth" in impairment charges relating to international retail and commercial banking businesses.

The bank has 11.5 million UK customer accounts, and 786,000 mortgage accounts.

At the company's credit card operation Barclaycard - which has 11.9 million UK customers - bad debt charges increased 10 per cent, reflecting the inclusion of the recently acquired Goldfish business and increased charges in Barclaycard International.

Barclays' investment banking arm appeared to be among the worst hit areas thanks to the credit crunch write downs.

The division, which is headed up by American banker Bob Diamond, saw pre-tax profits slump 68 per cent to £524 million.

Mr Varley said: "The conditions in the market that we have seen over the course of the last 12 months are as difficult as we have experienced in many years.

"Although I take some comfort from our relative performance in managing our risks and in generating income, a decline in profit of 33 per cent is acutely disappointing."

He added that market conditions over the foreseeable future will remain tough, "not least because we are now seeing the impact of slowing economies around the world and that means that we must remain very vigilant to managing risk."

Barclays shares were down 2 per cent today.

The bank's £2.8 billion of credit crunch write downs during the first half have been offset in the accounts with revaluation gains of £852 million, to give a net impact of around £2 billion. The net figure at the end of the first quarter was £1 billion.

Mr Varley said the group had been "conservative" in the level of write downs applied.

He said: "We are completely confident about the rigour we have applied to the (mark downs)."

His colleague Mr Diamond - who earned nearly £22 million last year - said liquidity issues in the market were "behind us", but warned that general economic fears still loomed large.

"People are looking to see a bottom in US housing," he said.

"We are not going back to markets like 2005 and 2006. We are going to be in more challenging markets for the balance of 2008 and throughout 2009.

"This is as tough an environment as we have operated in my 25 years in the business."

Barclays boosted its balance sheet with £4.5 billion of new capital last month, with wealthy overseas investors from Asia and the Middle East taking the lion's share of new shares.

The bank said as a result of the move its equity tier 1 ratio - which compares share capital with risk-weighted assets and is scrutinised by regulators and investors - improved from around 5 per cent at the end of June to 6.3 per cent.