Two sides to the coin as Barclays Capital gains share of profits

Published on Thursday 5 August 2010 15:15

ANOTHER day, another bank reports rising profits and falling bad debts. Barclays also added weight to the argument for keeping the banks intact after HSBC boss Michael Geoghegan declared on Monday that universal banking works.

Today it is the turn of Stephen Hester at Royal Bank of Scotland to tell his revival story and put the case for keeping the two key arms of banking - retail and wholesale - under one roof.

On initial inspection, Barclays' story is not quite so straightforward. The second quarter proved challenging for its investment banking business and revenue is a third lower for the half-year against the corresponding period in 2009.

But weakness in European retail and commercial banking meant that Barcap accounted for 86 per cent of group profits.

Management knows that earnings in investment banking tend to be more erratic than in retail banking, so they'd prefer the balance of profits to be a little more weighted towards the high street.

UK retail banking income was flat but the acqusition of Standard Life Bank's mortgage book added 12 per cent to average customer asset balances.

Barcap's value to the group is unquestioned. It has grown substantially since the acquisition of Lehman Brothers in 2008. Furthermore, the performance of Barcap gives the company the comfort of knowing that it would command a good price if the Banking Commission decided it ought to be sold.

The shares have performed well on the back of better news on the stress tests and other generally more benign signals from the regulators. A fall in the stock yesterday reflected a more cautious view from the markets of the outlook for activity in the medium term and the fact that restoring the dividend to pre-crisis levels is some way off.

Market cheers as Aviva shows there's life in insurance

AVIVA'S shares leapt to the top of the FTSE-100 leader board yesterday after a better-than-expected 21 per cent rise in half-year profit. The announcement, together with impressive figures from Generali, Zurich Financial Services and Delta Lloyd, prompted talk among European analysts that life insurance could take over from general insurance as the main stimulus of growth in the sector.

The upturn reflects a turnaround in fortunes from a year ago when premiums fell as economic woes deterred consumers from buying savings products.

The rise of savings rates should keep the momentum going. Aviva reported a 4 per cent increase in sales of long-term saving products, with a strong performance in Britain and Europe.

Income investors also have plenty to cheer as the interim dividend is up by an impressive 6 per cent after it was cut by almost 30 per cent last year.

Analysts are now more encouraged by the sector. Aviva's improving margins and sales figures bode well for the remaining announcements to come. Standard Life and Aegon are among those reporting next week.

Time for Scottish Government to think again on rates

SCOTTISH business leaders are urging firms to appeal over their rocketing rates bills in what is becoming a political timebomb for the Holyrood administration. They may not take much persuading. While the budget squeeze has left the Scottish Government with little room for manoeuvre it has also left a lot of businesses facing huge increases in their bills without any prospect of transitional relief.

Calls for a cap have been rejected and the SNP administration seems to be digging in its heels.

But the campaign is also gaining traction. Edinburgh Chamber of Commerce has added to warnings that some businesses face increases of 100 per cent or more. The issue has now spread to the public sector with NHS Lothian concerned that 100 jobs may be lost as a result of the rise in rates.

It's time for the Scottish Government to take another look and show that it really is putting economic growth at the heart of its policies.