'Big banks work' says Barclays as profits soar

BARCLAYS continued to keep the banking sector's foot on the pedal yesterday with a 44 per cent jump in first-half profits to £3.95 billion, driven by lower bad debt charges and tripled earnings at its investment bank, Barclays Capital.

• John Varley: Warned against splitting banks. Picture: PA

Barcap's revenues fell 15 per cent between the first and second quarters due to eurozone sovereign debt volatility, but group chief executive John Varley added his voice to rival HSBC earlier this week in saying the group's results showed the universal banking model worked.

HSBC made a profit of 7bn, while Lloyds Banking Group and Santander also posted strong profit increases for the first half. Lossmaking Royal Bank of Scotland is expected to have put in an improved performance when it reports today.

An independent banking commission is considering whether retail banking should be split from wholesale banking following the sector's crisis between 2007 and 2009. But Varley said: "By converting broad banks into narrow banks we will make the system less safe, not more safe."

He said many big British companies that had lots of business outside the UK benefited from the trade finance, forex, commodity hedging and other services universal banks could provided. He said an "unemotional" debate was needed on the issue to avoid "unintended consequences" from a split.

Barcap's profits surged from 1bn to 3.4bn. The division will account for the bulk of the 1.7bn of bonuses Barclays declared so far this year - 18 per cent up on the same time last year. Group bad debts fell just under a third to 3.1bn, despite a 433 million jump in losses on property loans in Spain, where property values have dived.

Bad debts in Barclays' UK high street business reduced 14 per cent, or 74m, to 447m. This helped the division boost profits 61 per cent to 504m. The result was also helped by the acquisition of Edinburgh-based Standard Life Bank earlier this year. Barclaycard profits fell 15 per cent.

Varley said the economy was better placed than at this point in 2009, but that confidence was still fragile. "There's light at the end of this tunnel, but for the time being it's clear we remain in the tunnel," he said.

Barclays Corporate, which lends to business customers with turnover of more than 5m, made a loss of 377m against a profit of 152m last time. Losses in mainland Europe and new markets more than offset increased profit in the UK and Ireland.

Varley said he saw little evidence of any "unmet need" in business loans, with Barclays advancing 10bn to firms in the period and 8bn in mortgages. That 18bn in total compared with a combined 17bn in the same period of last year, he said.

Echoing HSBC and Lloyds this week, Barclays said many business customers were paying down debt and not taking out loans, with applications noticeably down.

The group announced a second quarter dividend of 1p, matching the first quarter's payout.

• Barclays revealed yesterday it has set aside 194m to cover an investigation by the US Department of Justice on the possible violation of international sanctions imposed by the US between 2002 and 2007. It follows settlements by Lloyds and Credit Suisse as US authorities probe banks' dealings with countries such as Iran.