Sharp rise in profits at Barclays
Barclays has reported a sharp rise in profits, while Lloyds Banking Group - which is 44%-owned by the government - has warned it will make a loss in 2009.
Despite the ongoing banking and credit crunch, Barclays has netted £1.37 billion in the first three months of this year. John Varley, head of the banking group, says it has managed to shield most of the toxic debt writedowns that have affected its peers, also enabling it to continue trading without any money or bailouts from the government.
Instead, last year it raised £7 billion from Middle Eastern investors and sold its iShares fund management business to raise £3 billion.
"We generated strong income growth across most business lines driven by the investments we have made in expanding our international network and in buying Lehman,” Varley says. “We recognise the importance of continued capital generation and we remain committed to prioritising returns over growth and to reducing leverage."
Profits before tax were up 15% - or £178 million - in the first quarter of the year, while income nearly doubled to a record £8.1 billion. However, the bank has made losses from writedowns of £2.61 billion and the cost of acquiring parts of collapsed US bank Lehman Brothers last year.
Barclays saw most growth in its investment and commercial banking divisions, while retail - such as mortgages, savings and current accounts - fared less well.
Income from the bank’s UK retail banking arm decreased slightly, with margins squeezed on loans and mortgages as a result of the low Bank of England base rate. In addition, Barclays’ profit from this section of the business has taken a hit as more customers defaulted on their loans or ventured into their overdrafts.
Looking forward, the bank is expecting performance in April to be “consistent” with trading in February and March.
Barclays has, so far, declined to take part in any of the government’s bailout schemes to help the banking sector; in contrast, Lloyds Banking Group, created as part of the merger between Lloyds TSB and HBOS, is 44%-owned by the taxpayer.
Its financial results reveal that the “challenging market and economic conditions” will see it make a loss in 2009. In a trading update to shareholders, Lloyds says it delivered a good performance in the first three months of the year, but saw its margin squeezed and impairments rise.
Eric Daniels, group chief executive of Lloyds Banking Group, says: "In extremely challenging market and economic conditions, the group has made good progress in its first few months.
"While we continue to expect difficult economic conditions to prevail over the next year or so, we believe the strengthened group will be able to comfortably manage through the expected near-term economic downturn and focus on enhancing the group's prospects for long-term growth.”
Daniels adds that Lloyds' participation in the government’s Asset Protection Scheme will reduce its risk profile and “significantly strengthen our capital position”.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.