Barclays sees light at the end of the tunnel
Barclays said yesterday that the worst stress of the financial crisis has passed as confidence and liquidity starts to return to the money markets.
John Varley, Barclays' chief executive, said the Bank of England's special liquidity scheme and steps taken by other central banks had started to ease the shortage of liquidity. He was speaking as Barclays announced that its first-half profit had fallen by a third to £2.75bn as it wrote off nearly £2bn of credit market assets.
Mr Varley said: "The step that has already been taken, the introduction of the special liquidity vehicle, is enormously important. The moment of the greatest... stress in the markets is behind us – and that was the large liquidity crunch."
He added: "I'm not saying the world ahead will be an easy place. We are facing the impact of a reduced supply of credit and decelerating economies." But he said Barclays is planning for slower growth rather than recession.
Bob Diamond, Barclays' president and the head of the Barclays Capital investment bank, said returning confidence in the money markets had allowed prices to be put on assets and sales to take place.
"Risk transfer is beginning to work," he said. "Assets are moving, even troubled assets."
Barclays unloaded £8.3bn of credit assets in the first half of the year, losing £1.98bn. But Chris Lucas, the finance director, said the remaining £6.3bn had been sold at or around the price to which Barclays had marked them down.
Investors have questioned whether Barclays has marked down the value of its risky holdings sufficiently, raising concerns about whether there could be more big losses to come. The first-half charge was bigger than expected and the bank gave analysts more information than before, in the hope of reviving the bank's battered share price.
Mr Varley said: "Our shareholders have had to endure a lot. We are, and we will be, working as hard as we can to create the conditions that enable a higher price to be placed on our shares over time."
Barclays raised £4.5bn of capital last month from investors led by the Qatar Investment Authority, but its capital ratios will be thinner than those of others who have raised new funds. Concerns over the bank's limited writedowns and economic trouble ahead have fuelled fears that Barclays could have to seek more capital.
Mr Varley said he was confident about the capital position. Barclays has repeatedly said that it is different from other banks in the current market turmoil because all its businesses are profitable and it has better quality assets.
Bruno Paulson, analyst at Bernstein Research, said: "There is welcome new disclosure, but questions will remain about the adequacy of some of the marks... Barclays is operating at relatively low capital ratios, expecting a core Tier 1 ratio of around 5.7 per cent by the end of the year, making it vulnerable to any further writedowns."
Mr Lucas said the £6.3bn asset sale indicated that Barclays' judgment of their value was sound.
Mr Varley said that if the right deal came along, Barclays might seek to raise extra capital from investors to fund a takeover. Barclays has already picked up a credit-card book and a Russian bank this year. Mr Diamond said he was unlikely to make a move on a troubled US investment bank.
Mr Varley said he believed the securitisation markets – which allow loans to be sold to investors as bonds – would return. "We have been in a situation where there is [always] another firecracker going off," he said. "We need a few firecrackerless moments for people to concentrate on structure. The last two or three weeks have been calmer."
The bank's shares rose 1.6 per cent to 375p, their highest closing price since the end of May.
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