Investment bank boosts Barclays profits

Barclays HQ

Barclays has reported pre-tax profits of £3.95 billion for the first half of 2010 - up 44% on the same period last year.

Investment bank arm Barclays Capital provided much of the boost, with profits of £3.4 billion.

The bank said it lent £18 billion to UK households and businesses over the six-month period.

Barclays chief executive John Varley says his bank has performed well in difficult market conditions: "Against the backdrop of subdued economic and market activity and the sovereign debt storm of the second quarter, we have delivered good growth in income and profits, and, at the same time as lending £18 billion to UK households and businesses, we have kept the regulatory balance sheet under tight control."

The bank also took on £7 billion of lending following the acquisition of Standard Life Bank at the beginning of the year.

"We recognise our wider social responsibility as an enabler of economic growth and prosperity, and our actions are - and will continue to be - informed by this duty," Varley said.

"The period ahead will be one of great importance to the future of the industry as the final shape of the reform agenda starts to solidify. We will engage fully in that dialogue, whilst keeping our eyes firmly on the needs and interests of our customers and clients."

He also moved to reassure shareholders.

"At the heart of our ability to generate profits and returns for our shareholders throughout the credit crisis has been our income performance. Customers have choice. Income is driven and sustained by the strength of our relationships with the customers and clients who choose to do business with us."

He said the group's performance in the first half was executed in circumstances of relatively slow economic growth as the major economies in which it does business emerged from recession.

Group income grew by 8%. It was up considerably in Barclays Capital; down in Barclays Corporate; up modestly in Wealth and Absa; and flat in global retail banking.

"The benefit of our underlying income strength is shown by the net income that we are reporting today, up 25%. If the economic cycle improves, and our impairment charges with it, so the scale of the income we are generating should be increasingly felt in greater profit," said Varley.

On the topic of banking safety, he warned that making it risk-free would make the system socially redundant, with Barclays' job being to "help ... customers take appropriate risk".

"Of course, we must help make the system safer so that governments, economies and ultimately taxpayers are not faced with the prospect of having to bail banks out again. We should not, however, lose sight of the fact that banks must take risk in order to act as a catalyst of economic activity," he added.

And in a clear message to the government, he said: "The goal of regulatory reform should not be to turn banks into riskless utilities unless governments (that means taxpayers) are prepared to be the suppliers of credit to households and businesses. A healthy, privately capitalised and privately funded banking system is a vital component in the machinery of all strong modern economies. 

"I do, however, believe that banks should only be allowed to take the risk necessary to fulfil their economic purpose in the economy within a new framework which combines sensibly calibrated capital, leverage and liquidity requirements, good brand governance, strong regulatory oversight and fit-for-purpose risk management practices."

Barclays was heavily reliant on investment banking in the first six months of the year, with its investment arm, Barclays Capital accounting for more than 80% of overall profits. That included a one-off £851 million gain on the value of its own credit.

Retail banking profits came in at £901 million, up from £845 million on last year. Meanwhile, profits at Barclaycard fell 15% to £317 million. Losses on bad debts fell 32% to just over £3 billion, though the bank said impairment charges in Spain had increased.

Monday saw rival HSBC report first-half profits of £7 billion while Lloyds reported £1.6 billion yesterday.

Royal Bank of Scotland will announce its results on Friday.

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