Banking group Barclays PLC said today that first-half net profit increased 10 percent as stronger earnings from its expanded investment banking division outweighed an increase in bad loans.
Net profit for the six months ending June 30 was 1.888 billion pounds ($3.16 billion), compared to 1.718 billion pounds in the previous year. The result cheered investors who took it as a sign of recovery in a banking system battered by the world financial crisis.
Pretax profit from the Barclays Capital investment banking and securities division increased 100 percent to 1.05 billion pounds, boosted by the acquisition of the North American business of bankrupt U.S. investment bank Lehman Brothers.
Barclay shares were up 6.8 percent at 322.9 pence on the London Stock Exchange. They have recovered from a low of 51.2 pence on Jan. 23 during the depths of the banking crisis that saw several of Britain's biggest banks bailed out by the government.
Still, Barclays' bottom line was hit by clear signs of tough conditions in the wider economy. Impairment charges for bad loans increased 73 percent to 3.9 billion pounds, and unpaid credit card debt in the United States and Britain also hit earnings. Barclays said a third of the increase in bad loans was due to currency movements and methodology revisions, with the remainder attributed to the recession.
Revenue was up 37 percent to a record 16.25 billion pounds, net of insurance claims.
"Investors are beginning to appreciate the progress Barclays has made," said Richard Hunter, analyst at Hargreaves Lansdown Stockbrokers, who rated the shares as a "cautious buy."
"The market just seems to be in the mood to focus on the positive, like increased interim profits, as opposed to the bad" such as rising provisions for bad loans, said Martin Slaney at GFT Global Markets.
Barclays is the first of five big British banks to report earnings this week. HSBC Holdings PLC reported that profit was down 57 percent in the first half as bad debt provisions rose, while Lloyds Banking Group PLC reports Wednesday and Royal Bank of Scotland Group PLC on Friday.
The recession hurt earnings at Barclays retail and commercial division, where impairment charges on retail lending doubled to 1.98 billion pounds, while gross lending and advances were slightly lower at 200.55 billion pounds compared to 201.59 billion pounds at the end of last year.
The loan loss rate on credit cards rose to 6.8 percent in the U.K. and 9.8 percent in the United States, the bank said; credit card income however rose 14 percent to 8.95 billion pounds and pretax profit was up 1 percent to 391 million pounds. Set-asides for bad credit card debt rose 92 percent to 438 million pounds, reflecting rising losses in the United States and the stronger dollar.
Retail and business banking in recession-hit Western Europe saw before-tax profit sag 73 percent to 31 million pounds, weighed down by 301 million in commercial banking losses in the real-estate market, one of Europe's basket cases with an unemployment rate of 18 percent.
The bank said the second half of the year would be challenging but said a broadly based business outside of Britain would help the bank weather the recession.
"The investments we have made, particularly in our international businesses, are driving very strong income performance and allowing us to absorb the consequences of the economic downturn," Chief Executive John Varley said in a statement.
Barclays has expanded operations in Pakistan, India, Indonesia and Africa.
"Our capital base is stronger and we have significantly reduced leverage. Our goal for 2009 is very clear: we seek to deliver another year of solid profitability. Our first half performance is a good start to this."
Barclays chose to raise additional capital from Middle Eastern investors rather than participate in government bailouts, and it has said it doesn't expect to participate in the government's asset protection scheme to insure against bad loans.
The bank will also raise 8.2 billion pounds by selling its Barclays Global Investors unit, the world's largest asset manager, to U.S. fund manager
BlackRock Inc. The deal, in which Barclays would retain a 20 percent stake of BGI, is subject to approval by shareholders at their annual general meeting on Thursday and was not reflected in first-half results.
"Barclays' decision to plow its own furrow without aid from the government has to date served it well. Despite a meteoric rise in the share price over the last six months, the shares remain down 11 percent over the last year, against a wider FTSE100 fall of 14 percent," Hunter said.
