Commercial Property News

Barclays reported a 33% drop in first-half profits as it took a £2 billion writedown on the value of risky assets, but the profit drop was not as steep as expected.

Britain's third biggest bank said today its pretax profit in the six months to the end of June was £2.75 billion , down from £4.1 billion a year before. The average forecast was for profits of £2.63 billion, from a poll of 7 analysts.

Half-year profits at Barclays Capital fell 68% to £524 million , as it absorbed a £1.98 billion writedown on its credit market exposures, net of £852 million on the debt it carries.

BarCap had estimated a £1 billion net writedown for the first quarter and wrote down a net £1.6 billion last year. It has been criticised for not marking down its assets as much as most rivals. It has said its assets are higher quality.

The bank said its total charge for bad debts and other credit provisions was £2.45 billion in the half, more than double £959 million a year before.

The bank said the outlook will remain difficult. "It would be wrong ... to suggest that the market conditions over the foreseeable future will be anything other than tough," said Chief Executive John Varley, citing slowing economies around the world.

He said in some areas "it may take quite some time" for volumes to return to past levels. 

Of the £2.45bn impairment charges, £1.11bn related to US subprime mortgages and other credit market exposures. Excluding these, impairment charges increased 40 per cent. Mr Varley said credit market writedowns ”stabilised in the second quarter” at around £1bn, the same as in the first quarter.

Some analysts have questioned whether Barclays has been sufficiently prudent in taking provisions, but Mr Varley said: ”We are completely confident about the rigour we have applied to the marks” in taking writedowns. He said the bank had reduced its credit market exposures by £8bn in the first half.

Chris Lucas, finance director, said that while the bank had largely reflected market movements in quantifying the writedowns, it had taken a more conservative stance against its exposure to monoline insurers. “We’ve been more forward looking in our mark downs,” he said.

Barclays has been careful to avoid some presently difficult areas. Construction and property companies comprised only 13% of its UK commercial loan book, which it said was a “significantly lower proportion than would be seen generally across the UK market.” After the equity issue in July, the bank’s equity Tier 1 ratio was 6.3 per cent, up from 5 per cent at the end of June.

This week Barclays has agreed to sell its life assurance arm to Swiss Re for £753million in cash. Barclays Life consists of the life assurance operations of Barclays and Woolwich, but has been closed to new business since 2001. Barclays said it expected to make a £330m post-tax profit on the sale to Swiss Re.

Barclays recently carried out a rights issue to raise cash because of the continued uncertainty in credit markets. While the bank secured £4.5bn from investors, the take-up by ordinary shareholders was low.