The bank's exposure to five high-profile property risks has significantly increased its bad debt charge and helped to push it into loss. It is estimated to have lent a total pounds 700m to just five borrowers - Imry, Heron International, the Canary Wharf project, Mountleigh and Speyhawk. All five are in various stages of financial intensive care.
Barclays has been forced to take 100 per cent control of Imry as a result of enforcing security held against a loan. Its pounds 440m loans to the company, unusually, were not syndicated, leaving Barclays painfully exposed. At the end of December Barclays' shareholding in Imry was valued at pounds 56m and the capital and reserves of Imry amounted to pounds 71m.
Financial reconstructions of Heron and Speyhawk are being negotiated; Canary Wharf and Mountleigh are in administration.
Barclays has traditionally had a higher exposure to the property sector than other banks, but believed until recently that its lending was of a superior quality. Although the bank put the brakes on property lending in the past two years, it came too late. Its position as lead banker to many property companies, such as Heron and Speyhawk, has inevitably left it open to the full force of the downturn in the market.
The gruesome numbers speak for themselves. Property and construction accounted for more than 40 per cent, pounds 784m-plus, of the bad and doubtful debt charge at the domestic bank last year; a hefty 10 per cent of the pounds 7.7bn UK property and construction loan book is the subject of provisions; total specific provisions in the UK rose 50 per cent to pounds 1.96bn.
Barclays is hoping to ride out the bad times and reap the rewards of recovery, which should reduce the over-supply of offices. Its ownership of Imry at least means it should benefit directly from any upturn in the sector.
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