Barclays suffers investment banking softness

TIP UPDATE: Lower impairments boost profits, but Barclays faces an investment banking squeeze

August 5, 2010

Barclays followed the trend set by other lenders this week and reported much improved headline profits, largely reflecting a reduced impairment charge. That said, adjusting for acquisitions and disposal profits, underlying pre-tax profits actually grew 22 per cent to £2.96bn rather than the 44 per cent headline figure. What's more, Barclays hasn’t been able to reduce its bad debt charge as deeply as at other lenders - it fell 32 per cent year-on-year to £3.1bn compared, for instance, to a 46 per cent fall in HSBC's impairment charge.

IC TIP: Sell

That partly reflects ongoing credit quality issues at the loss-making corporate arm, where the impairment charge rose a third to £949m - primarily in Spain where Barclays was hit by depressed condition in the property and construction sector. Additionally, the investment banking arm, Barclays Capital, reported a mixed performance. The divisional impairment charge was slashed to just £309m from last year's £1.9bn - which helped pre-tax profit there to soar from £1bn to £3.4bn - but the unit's top-line income actually fell 32 per cent in the half year to £7.1bn. Management says that's down to a "more challenging market environment", reflecting low interest rates and subdued market activity - especially in European derivatives.

Barclays' UK retail arm delivered strong pre-tax profit growth, although the rise in profits from £313m to £504m was helped by a £100m gain from acquiring Standard Life Bank and a 14 per cent fall in the impairment charge. The bank's western European retail business, however, saw profit fall £82m to just £10m as tough economic conditions continued to bite.