Barclays has insisted it does not need to raise more capital as it announced profits for the first nine months of the year that topped £5bn – despite the eurozone crisis denting its investment banking division.
Shares in the bank, which avoided a taxpayer bailout during the 2008 crisis, rose initially but ended 3% lower at 195p Monday, as the market again worried about the strength of the European bailout deal.
Analysts at UBS also noted that in the Barclays Capital investment bank – which fared better than some rivals – revenues fell faster than costs which left the division with a cost-income ratio of 82% for the quarter. This is higher than the target range of 60% to 65%.
The bank admitted it was putting aside 46% of revenue generated by the BarCap division – which was down 22% in the third quarter – towards bonuses and other costs associated with paying staff, compared with 43% a year ago. Bob Diamond, the chief executive, warned he expected 'difficult' market conditions to continue into next year but maintained the bank's target of a 13% return on equity by 2013 – from 8% now.
He stressed the bank's strong capital position. 'Rock solid capital, funding and liquidity have been maintained. We will continue to generate sufficient capital for our business needs and do not intend to raise new equity capital'. Diamond said.
Pre-tax profit for the third quarter reached £2.4bn – but stripping out a gain on the value of its own debt and other one-off items, profit was £1.3bn, up 5% on a year ago.
Among the one-off items is a £1.8bn writedown of the bank's stake in the fund manager Blackrock, which bought Barclays Global Investors, and a £2.9bn gain on the value of its debt.
For the nine months, stripping out one-off items, 'adjusted' pre-tax profits were up 18% at just over £5bn. This figure shows a fall in profits at BarCap – to £2.7bn from £3.3bn, while on a statutory basis the division shows a rise to £5.6bn because of the benefit of £2.9bn on the cost of buying back its own debt on the markets.
'We knew the third quarter wouldn't be pretty but this ranks as a thoroughly respectable performance … In an extremely challenging quarter, BarCap's performance proved more resilient than many of its peers', said Ian Gordon, head of bank research at Evolution.
A fortnight ago Goldman Sachs, a major rival on Wall Street, reported only its second quarterly loss since its flotation in 1999.
The bank has reduced its exposure to the most troubled eurozone counties – Spain, Italy, Portugal, Ireland and Greece – with loans to those ares down 31% to £8bn in the third quarter.
There was also an improvement in the impairment charge for bad debts which fell 34% to £2.8bn.
Diamond also stressed that the bank was meeting its Project Merlin targets to lend to small business with gross new UK lending to businesses of £33bn during 2011, including £11bn to small businesses. The group is on track to exceed Project Merlin targets for 2011.
The bank expects to pay between £330m and £380m in 2011 on George Osborne's bank levy.
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