Investment banking lifts Barclays profits

As the bank revealed that Bob Diamond's investment banking arm had boosted profits a third to 1.66bn, Varley said he acknowledged that the weaker Barclays share price remained a problem, given the current standing of its bid for the Dutch bank.

But he said it was not a case of Barclays being unlucky with recent stock market volatility affecting the value of its bid more than the rival higher, largely cash, offer for ABN from the Royal Bank of Scotland consortium.

Varley said: "There's no point in being fatalistic about this. I don't think luck comes into it. We will win the ABN merger because of our wits."

Currently, the offer from RBS, Fortis and Santander for ABN is clearly financially superior to the one from Barclays.

Share price movements are much more important for the Barclays offer because its cash component is only 37 per cent of the whole. That compares with 93 per cent cash from the consortium.

But Varley contended that the current Barclays share price - closing up 8.5p at 686p yesterday - was not as important as where it was at the time of the deadline of the bid in late-September.

He said there was additional uncertainty over the consortium's rival offer as to whether 75 per cent of Fortis shareholders would approve its part in the bid and a 15bn (10bn) capital raising - the largest in European banking history - to bankroll the offer. The extraordinary general meeting is on Monday.

There was also the regulatory uncertainty, Varley said, of whether the Dutch central bank would approve a break-up of a leading Dutch bank by a consortium.

His latest comments came as Barclays put out a generally strong set of interim trading results, which Varley said showed the diversified business model of his bank.

Barclays' UK retail banking arm lifted profits 9 per cent to 1.36bn. Its UK bad debts fell 1.5 per cent to 400 million.

Barclays Global Investors profits rose 7 per cent to 388m.

Barclays Wealth, the private banking operation for the rich, saw profits climb 33 per cent.

Diamond, the head of BarCap, said despite the volatility in financial markets in recent weeks and worries over subprime lending in the US, the division continued to perform well.

Diamond said: "Despite the increase in volatility we have had a good July with revenues and profits ahead of last year."

He said that in forex activities BarCap had seen average daily volumes of 100,000 client transactions in July, which was "double the average in June".

However, Diamond said that for the first time in four years, credit markets were having to reprice risk because investors were now able to dictate more of the terms. "That's a change," he said.

Barclays announced a 10 per cent rise in the interim dividend yesterday to 11.5p.

Varley said that despite current market turbulence, he felt the medium-term outlook for the banking sector was good.