Barclays banks profits drop

UK bank Barclays has seen annual profits drop to £7.08bn, including a net loss of nearly £1.6bn stemming from turbulence on the global credit markets.

Bank profits fell by 1.1% from £7.13bn a year earlier, but met market forecasts. Barclays’ shares have fallen 42% in the past year on uncertainty over its exposure to US sub-prime mortgages following the US housing slowdown. However, Barclays - which announced it would increase its dividend by 10% said it was “confident” looking ahead. Shares in the firm fell 3% soon after the announcement, but later climbed, adding 2.5% to 471 pence by late morning trade.

“Barclays delivered a resilient performance in 2007,” said chief executive John Varley. He said the bank “handled well the stress test of market turbulence in the second half of 2007″. Profits at Barclays Capital - the British bank’s investment arm - increased 5% to reach £2.34bn.

“Overall, the numbers came in broadly in line with our expectations and consensus, and that’s a relief,” said Mamoun Tazi, an analyst at MF Global. “Barclays Capital performed in line despite the write-downs, which highlights the fact the underlying business is very strong.”

However, the firm was not immune to the credit crunch. The bank said impairment charges and other credit provisions increased 30% to £2.79bn, including £782m linked to the US sub-prime crisis.

Barclays, like other banks, has been hit by exposure to the slowing US housing market, which has triggered a rise in mortgage defaults especially among risky - or “sub-prime” - borrowers.

And Bob Diamond, head of Barclays Capital, said “very difficult and challenging market conditions” would remain for the next six months.

Despite the fall in overall profits, the UK arm of Barclays’ business saw profit rise by 4% to £2.6bn, and the retail arm did especially well with profits up 9% for the period.

Impairment charges in the UK remained “negligible”, with “low levels of defaults”.
Looking ahead the firm Mr Varley said he expected “significant opportunities for growth”, but warned that the bank would have to be disciplined in its risk management and lending strategy.

The results come after Bradford & Bingley saw profits fall by almost half, following market turmoil. And Lloyds TSB and Alliance & Leicester are also due to report this week.