Barclays Write-down Not As Bad As Rumoured
There have been rumours about the financial health of Barclays in recent days and weeks, and earlier this week they admitted to taking a hit of £1.3bn over the last four months from the credit crisis that is causing upheaval all over the world. For October alone Britain's third largest bank had to write-down £800m. The recent speculation about Barclays forced it to issue the update on its investment banking division Barclays Capital, with hundreds of employees in Canary Wharf, London.
The £1.3bn loss may be a lot, but it was well short of the £10bn rumours that rippled around the stock market last week and caused trading in share of Barclays to be suspended briefly when they started to dive. Even after the latest write-downs the profits of Barclays Capital for the first 10 months of this year have been £1.9bn, which is higher than for the same period in 2006. Pre-tax profits for Barclays Capital were £2.21bn in 2006, and the bank as a whole had profits of £7.1bn.
Chief executive at Barclays, John Varley said that the bank had not rushed out the statement ahead of the full trading update due in a fortnight. He said: "We have updated the market about BarCap each month from July to September, and decided we should do so again once we knew October's trading."
Head of Barclays Capital, Bob Diamond, said the October write-down was larger than in previous months because it consisted of "second leg-down in the subprime market." His explanation was: "Early in October, the credit ratings agencies downgraded some 5000 CDOs [collateralised debt obligations] and the next few weeks were by far the most severe in those markets. We have answered demands that we should give a greater degree of clarity on both our exposure and write-downs in these markets." Despite the write-downs, October has seen Barclays Capital post the fourth largest monthly income in its history, Diamond said. He would not confirm or deny whether the write-downs would result in the loss of any jobs and said that the majority of the losses were in the US. He did say that prudent cost management was a stalwart of Barclays ethos, but they had no plans for trimming yet. He would make no forecasts on bonus payments, saying that the whole year was not yet done.
Diamond added that Barclays large leveraged-loan business was much less hit by the credit crunch than a lot of analysts had expected, the net write-down being only £60m.
Analysts have also been forecasting a write-down at Royal Bank of Scotland of around £500m, based mainly on its leveraged book and US consumer banking businesses. Its market update is due on 6 December, but it might get a stock market reprieve thanks to the Barclays figures.
Diamond and Varley also denied rumours that either of them was about to leave Barclays, which recently failed in its bid for ABN Amro to RBS. In response to a question about whether someone should step down Varley replied: "Actually what we've announced today is record profits at BarCap. I think that is a very resilient and very strong performance, with which I'm well-pleased."
Published on November 21, 2007
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