Bad debts rack up at banking giants
Bad debts at banking giants Barclays and HSBC knocked profits at the pair for the first half of the year, but the former still managed to post an 8% profit increase.
British bank Barclays racked up first-half pre-tax profits of £2.98 billion, helped by booming business at its Barclays Capital arm. Analysts had pencilled in group profits of around £3.5 billion.
The acquisition of Lehman Brothers and strong commodity, currency and debt revenues had given Barclays Capital a shot in the arm, helping pre-tax profit at the division double to £1.05 billion. Its Barclays Global Investors arm, the subject of a successful bid from US firm BlackRock, also notched up the gains, with pre-tax profits climbing 4%.
However, the brakes were applied to Barclays Capital's soaring profits by a series of hefty write downs, with the arm taking a hit of £4.68 billion on its credit market exposures - a rise of 86% from the previous year.
Elsewhere in the group, its UK retail banking division saw a 61% fall in profits, but chief executive John Varley reassured investors that the bank was "solidly profitable".
He added that the bank had lent £17 million to businesses and individuals in the UK in the six months to the end of June, surpassing its target of £11 billion for the whole year.
It was a far bleaker picture at rival HSBC, whose bad debts contributed to a halving in profits for the half year.
The global banking giant was forced to set aside $13.9 billion to cover consumer loans that had gone sour - the majority of which came from its US lending business.
HSBC bought the Household International business back in 2003 for $15 billion. However, it is currently being wound down after haemorrhaging billions of dollars. It posted a $15.2 billion loss for the second half of 2008, with a further pre-tax loss of $2.9 billion for the first six months of the year.
In contrast, its global banking and markets division reported a record pre-tax profit for the first half of 2009 of US$6.3 billion, more than double pre-tax profit for the first half of 2008.
Like Barclays, HSBC has been ramping up its lending in the UK mortgage market with its estimated share of new lending more than doubling to 9.7%.
It has committed £15 billion for new mortgage lending this year, of which £6.7 billion was lent during the first half.
Chairman Stephen Green remained cautious: "The timing, shape and scale of any recovery in the wider economy remains highly uncertain. Our view continues to be cautious as long as a number of serious impediments to growth remain."