Aug. 7 (Bloomberg) -- Barclays Plc, the U.K.'s third- biggest bank, reported first-half profit that fell less than analysts estimated, even after increasing writedowns of bad debts.

Net income declined 34 percent to 1.72 billion pounds ($3.4 billion), 26.2 pence a share, in the first six months of the year. Barclays marked down 2.8 billion pounds of credit-related assets, more than analysts predicted, and still exceeded their average profit estimate of 1.5 billion pounds.

``Maybe this is grist to the mill for those who said that Barclays was underproviding for its writedowns,'' said Simon Maughan, a London-based analyst at MF Global Securities Ltd. who has ``buy'' rating on the stock. ``They have written off significantly more than they flagged in June, and still the profit has met consensus.''

The bank wrote down or sold assets ``to manage the difficult positions we have in credit-related assets,'' President Robert Diamond said in an interview today. Holdings of securities tied to U.S. subprime mortgages, bond insurers and leverage loans fell by 8.3 billion pounds, and Diamond said he will seek more reductions. Barclays Capital, the investment bank, had pretax profit of 524 million pounds, down 69 percent from the year-ago first half.

Barclays gained 1.6 percent to 375 pence today in London, valuing the bank at 30.5 billion pounds. The company, which relied on securities trading for a third of profit last year, is down 24 percent this year, more than the 21 percent drop for the eight- member FTSE 350 Banks Index.

`Bit of a Relief'

``There was a bit of a relief that there was nothing in the numbers,'' said Julian Chillingworth, chief investment officer at Rathbone Brothers Plc, who holds Barclays stock. ``The market is quite sanguine about the figures, but they are not out of the woods. It really is about whether there are more writedowns to come, as it also faces a slowdown in the U.K. and Europe.''

Pretax profit in U.K. consumer banking rose 6.8 percent to 690 million pounds as mortgage revenue increased, Barclays said. Profit rose 30 percent to 388 million pounds at the credit-card unit, increased 10 percent to 298 million pounds at the South African Absa unit rose, and gained 5 percent to 182 million pounds at the private bank. Fund-management profit dropped 32 percent to 265 million pounds.

Consumer bad debts rose 4 percent to 288 million pounds, and ``mortgage impairments remained low,'' the bank said. Barclays said its share of the U.K. mortgage market rose to 26 percent from 6 percent a year earlier. HBOS, the U.K.'s biggest mortgage lender, and Alliance & Leicester Plc have pulled back lending after their funding costs surged.

`More Aggressive'

``The market is probably looking at Barclays's U.K. business and seeing a lack of arrears,'' said Colin McLean, an Edinburgh- based fund manager at SVM Asset Management, which has about $1 billion in assets.

Bad loans, including customer defaults and credit losses at Barclays Capital, more than doubled to 2.4 billion pounds, exceeding the 1.8 billion-pound average estimate of 10 analysts.

The bank's first-half writedowns add to credit losses of 2.3 billion pounds last year. Barclays's first-half markdowns took an average of 25 percent off asset values.

While it had virtually no write down on loans made to finance leveraged buyouts, the sale of LBO assets reduced total holdings by 32 percent to 5 billion pounds.

Diamond, 57, said Barclays sold off loans that helped finance part of the LBO of Alltel Corp., which was taken over this year by Verizon Wireless. Barclays didn't sell the loans at a discount to the value on its books, Diamond said.

Subprime Mortgages

This year's writedowns, which were partially offset by a 852 million-pound gain on Barclays's own debt, included 875 million pounds on collateralized debt obligations backed by U.S. subprime mortgages. Barclays said it reduced the value of CDOs by 31 percent to 3.2 billion pounds.

The bank also cut U.S. subprime loans by 35 percent to 3.3 billion pounds and trimmed so-called Alt-A loans by 29 percent to 3.5 billion pounds. The value of its commercial mortgage-related securities dropped 11 percent to 11 billion pounds.

Barclays said its bond-insurance risks rose to 2.6 billion pounds from 1.3 billion pounds. It increased capital to reflect credit downgrades at MBIA Inc. and Ambac Financial Corp., which guarantee some of Barclays's securities.

Diamond said his personal credibility is tied to the markdowns, and it's been ``hard to listen'' to criticism about their veracity. ``I have heard there has been some criticism coming from people with other interests,'' he said. ``We are confident with our marks.''

`Bringing Back Confidence'

Central banks ``are bringing back confidence to the money markets,'' Diamond said. ``Assets are moving, even troubled assets, even mortgage assets, to new buyers.''

Edinburgh-based Royal Bank of Scotland Group Plc forecasts credit-related losses of 5.9 billion pounds this year. Banks and brokerages have posted $493 billion in losses and raised $356 billion in capital since the credit crunch started a year ago.

Barclays has said it doesn't need additional capital after raising 4.5 billion pounds in a share sale to investors and sovereign wealth funds last month. The Qatar Investment Authority was among the overseas shareholders to buy stakes in Barclays after 81 percent of the bank's investors passed on the chance to buy shares at 282 pence in July.

``The Qataris are now the proud owners of 0.8 percent of the ordinary shares of Barclays,'' said Ian Gordon, a London-based analyst at Exane BNP Paribas who is reconsidering his ``underperform'' rating on Barclays in light of today's report. ``They are already sitting on large paper profit and will be delighted that there are no unexpected nasties.''

No `Significant' Acquisitions

Barclays's rights offering lifted so-called Tier 1 capital ratio, which measures a bank's ability to absorb losses, to about 6.3 percent. That ratio will drop to about 5.8 percent as the bank spends money to expand in the U.S. and Asia, Chief Executive Officer John Varley, 52, told reporters today.

Varley has ruled out ``significant'' acquisitions to preserve the bank's capital, he told reporters at a meeting in London. The bank will focus on growing its consumer bank and will add 250 branches and 4 million customers by year end, he said.

Barclays reiterated it will pay a cash dividend of 11.5 pence a share for the first half, unchanged from last year. RBS, the U.K.'s second-biggest bank, plans to pay a first-half dividend in stock to save capital.

RBS, led by CEO Fred Goodwin, may report a first-half loss of 1.16 billion pounds tomorrow, according to the average estimate of 10 analysts surveyed by Bloomberg.

About a third of RBS's credit losses this year were tied to the acquisition of Amsterdam-based ABN Amro Holding NV's investment banking unit. RBS and partners Banco Santander SA of Spain and Fortis of Belgium outbid Barclays last year for ABN Amro, in what was the biggest banking acquisition in history.

To contact the reporter on this story:
Ben Livesey in London at 
blivesey@bloomberg.net

Last Updated: August 7, 2008 13:12 EDT