Barclays in profit despite the crunch
Barclays has delivered better than expected financial results and reiterated claims that it does not need any government money to survive the slump.
Shares in the group soared by almost 30% after the banking giant revealed that its annual pre-tax profit for 2008 would come in above market expectations of £5.3 billion despite £8 billion worth of write-downs on credit market exposures and leveraged loans.
In an open letter to investors, chairman Marcus Agius and chief executive John Varley said that the bank does not require further cash from shareholders or the government to shore up its capital position.
They added that current trading is healthy and “got off to a good start in 2009”.
Agius said in the letter: “These figures demonstrate that although we have been heavily impacted by the credit crunch, our income generation was at a record level in 2008 and has enabled us to withstand this impact and still produce strong profits.
“We are well-funded and we are profitable. Recognising that 2009 is not yet a month old, and that the global economy will remain weak, we can tell you that customer and client activity levels have been high,” he continued.
He pointed out that the bank has £36 billion of equity capital with its Tier One capital ration standing at 9.5% - above the level set by the Financial Services Authority.
Barclays is also bringing its full-year results forward by a week in a bid to stem any further falls in its share price. Last week, its shares plummeted below 50p from 150p at the start of January, leading to speculation that nationalisation could be on the cards.
Barclays previously admitted to losing £3.3 billion in the first six months of 2008, meaning that it lost around £4.7 billion in the second half of the year as the credit crisis kicked in with a vengeance. In 2007, its pre-tax profits came in at £7.1 billion.
Earlier this month, Royal Bank of Scotland shook the banking sector with a warning that it was on course to report the biggest ever loss in UK corporate history of £28 billion.
It now faces further crisis amid stepped-up calls for an investigation into its £12 billion rights issue by members of the Scottish Parliament.
The Lothian and Borders force has confirmed that it is conducting inquiries into claims the bank fraudulently sought investment from shareholders in full knowledge that the bank was insolvent.
Former chief executive officer Sir Fred Goodwin and his team of executives who led the bank's debt-driven surge to become the world's fifth-largest bank before its spectacular fall from grace will reportedly be at the heart of the investigation.
Scottish Liberal Democrat leader Tavish Scott and Nationalist MSP Christine Grahame have led the calls for an inquiry, with Scott appealing to the Serious Fraud Office to investigate whether investors were given "a full picture of how strong or weak [RBS was] as a financial institution" when the bank asked for money.
At the time of the cash request, RBS assured investors that the bank was solvent and was well placed to ride the waves of the credit crunch.
However, since then, the bank's reputation and share price have plummeted, with the latest calls coming just days after announcing that it expects to report the worst loss - up to £28 billion - in corporate history. It is now 70% owned by the taxpayer.
Scottish First Minister Alex Salmond has supported calls for action on the banking sector, but resisted demands for criminal proceedings.
Instead, he said he would "rather favour a parliamentary investigation, not just into RBS but into the financial sector."
In a further attack on the beleaguered banking sector - and Goodwin, in particular - former deputy prime minister John Prescott urged the bank's former CEO to be stripped of his knighthood and while angrily claiming that it was "the bankers [who] caused the damn problems and they should be paying the consequences for it".
A way a company can raise capital by creating new shares and invite existing shareholders in the company to buy these additional shares in proportion to their existing holding to avoid a dilution of value, which means keeping a proportionate ownership in the expanded company, so that (for example) a 10% stake before the rights issue remains a 10% stake after it. As an added incentive, the new shares are usually offered below the market price of the existing shares, which are normally a tradeable security (a type of short-dated warrant) and this allows shareholders who do not wish to purchase new shares to sell the rights to someone who does.