Barclays promises tougher approach to lending as profits dip 1%

Published on Tuesday 19 February 2008 20:40

BARCLAYS yesterday promised to be "disciplined" in its risk management and "rigorous" in its approach to lending as it unveiled profits of £7.08 billion.

The banking giant revealed that it has taken a 1.6bn hit from the credit crunch and warned of "at least" another six months of market turmoil ahead.

Barclays, the first of the "big five" UK banks to unveil full-year results, said profits were down 1 per cent on 2006 after the write-down from the collapse in America's sub-prime mortgage market. The losses mainly related to investments linked to US subprime homeloans in its Barclays Capital investment banking arm, with 782 million also put aside to cover further bad debts.

However, the write-down was less than feared, at just 300m more than the 1.3bn already announced last November.

Shares in Barclays plunged immediately after the figures were released but bounced back after positive comment from analysts.

The bank said it made provisions of 2.8bn to cover bad debt charges and impairments – up 30 per cent on 2006 – although the increase was largely down to the 782m exposure to the US high-risk home loans.

Arrears and defaults within its retail banking and Barclaycard arm "significantly" improved, down 7 per cent to 2.01bn.

John Varley, Barclays group chief executive, said: "Barclays delivered a resilient performance in 2007 in a year of contrasting market conditions."

UK retail banking pre-tax profits rose 9 per cent to 1.28bn in spite of a 116m payout to settle customer claims on overdraft fees from previous years. The Barclaycard business also saw an increase in profits, up 18 per cent on 2006 to 540m, driven by a robust performance in its international operation.

The group's investment banking arm, Barclays Capital, took the impact from the credit crunch in its stride, improving on the 2006 record pre-tax profits, up another 5 per cent to 2.34bn.

Barclays gave investors a boost with a widely 10 per cent increase in its dividend payment. The bank's monoline exposure is up nearly ten-fold on the 140m reported at the half-year stage.

Varley cautioned that Barclays would "have to be disciplined in our risk management and rigorous in our approach to lending" over the year ahead.

Last year was a testing one for the bank, given the credit conditions and after it was thwarted by Royal Bank of Scotland in its attempt to merge with Dutch bank ABN Amro.