Feb. 19 (Bloomberg) -- Barclays Plc, the U.K.'s third- biggest bank, said second-half profit fell a smaller-than- estimated 21 percent on asset writedowns and a drop in revenue from fixed-income trading.

Barclays rose 3.7 percent in London trading today after indicating it has had no further substantial losses. The securities unit had 1.6 billion pounds ($3.1 billion) in net writedowns last year related to assets such as collateralized debt obligations and loans for leveraged buyouts. Net income declined to 1.78 billion pounds, or 26.6 pence a share, the bank said.

Chief Executive Officer John Varley said the U.K. and U.S. economies are slowing, adding pressure to banks already facing bad consumer loans and a slower housing market. The U.S. subprime-mortgage slump forced the world's biggest financial institutions to write down more than $145 billion and prompted Zurich-based Credit Suisse Group to say today that pricing errors on bonds will cut first-quarter profit by about $1 billion.

``The fact that there are no surprises is good news and shows that Barclays is coming out of this with minimum injuries and bodes well for the future,'' said MF Global Securities Ltd. analyst Mamoun Tazi in London, who rates the stock ``buy.''

Barclays raised its dividend by 10 percent to 22.5 pence in the second half as profit beat the 1.73 billion-pound median estimate of 13 analysts surveyed by Bloomberg. It earned 2.26 billion pounds, or 34.5 pence a share, in the second half of 2006.

Hedging Plan

Pretax profit fell 14 percent to 2.96 billion pounds, declining 30 percent to 675 million pounds at Barclays Capital, the most profitable division in the first half. Profit from U.K. banking was little changed at 1.29 billion pounds and more than doubled at Barclaycard to 268 million pounds. Fund management, international units and private banking accounted for the rest.

Barclays had hedging as of Dec. 31 to protect itself against a decline of as much as 72 percent in the value of its subprime holdings. Potential losses from assets hedged with U.S. bond insurers were 1.3 billion pounds, the company said.

``If we had something that we felt significantly changed the comments that we've made about the outlook and something that had a significant effect upon the market position of our equity we would make a statement,'' Finance Director Chris Lucas told journalists. ``We do not feel we have to make one.''

Barclays traded up 17 pence to 477 pence in London. It has slipped 25 percent in the past six months, just below a 24 percent drop in the FTSE All-Share Banks Index. The company missed its target to be in the top quartile of peers for total shareholder returns since 2003.

Barclays Capital

``Our performance was good in 2007 even as the market threw everything it could at our capital markets business,'' Varley said on a conference call with analysts. ``Global retail and commercial banking is showing good momentum in the U.K., in western Europe and especially in emerging markets.''

The writedown is a 26 percent increase on the 1.3 billion- pound charge reported in November for the first 10 months. Bad debts rose 67 percent to 1.84 billion pounds from 1.1 billion pound pounds, driven by an 846 million-pound impairment charge at the Barclays Capital investment-banking unit.

Barclays Capital is expanding commodities trading and overseas consumer lending to help mitigate a decline in credit trading. The bank abandoned its 63.2 billion-euro ($123 billion) bid for ABN Amro Holding NV in October.

``The big growth engine for Barclays has been Barclays Capital, the outlook for which is not that great at the moment,'' said Derek Chambers, an analyst at Standard & Poor's Equity Research Ltd. in London who rates the stock ``buy.''

`U.S. Priority'

Barclays President Robert Diamond said the slowdown in the U.S. may enable the bank to invest and gain ground on securities firms that have been hurt by market swings. Jerry Del Missier, Barclays Capital president since last month, has moved to the U.S. where he will also work on expanding wealth management.

``The challenge for us is to manage a difficult financial environment but also to invest and grow,'' Diamond said in a television interview. ``The No. 1 priority for us is the U.S. There is an opportunity to move into the top three tier.''

The company is among banks involved in discussions with U.S. regulators on how U.S. bond insurers can deal with potential debt downgrades triggered by losses on home loans. ``Who knows if a solution will come?'' Diamond said.

`Straight Bat'

Barclays Capital's revenue was lifted by about 1 billion pounds in one-time items, including a 514 million-pound reserve release and gains on private equity, structured capital markets deals and sales of investments in Asia, Bear Stearns Cos. analyst Robert Sage wrote to clients today. The boosts ``were unexpected and could be perceived as lower quality,'' he wrote.

Credit Suisse, the second-biggest Swiss bank after UBS AG, reduced the value of asset-backed securities by $2.85 billion today. The company is assessing whether 2007 earnings may be affected by the pricing errors.

``Barclays has done as much as it can, it's played a straight bat and come out clean so far,'' Bob McDowall, a senior research analyst at Tower Group Inc. said in a television interview. ``The dividend will shore up confidence in Barclays as long as they don't come out with news like Credit Suisse.''

``This is better than many fears and provides a good read- across to other U.K. banks,'' London-based Collins Stewart analyst Alex Potter said in a note to clients today.

Targets

Barclays is ``screening'' opportunities to acquire lenders or expand its own units in western Europe, Africa and the Middle East, consumer banking head Frits Seegers said at a press conference in London. He declined to comment on reports that Barclays is in talks to buy Russian lender Expobank. Barclays plans to open its first branch in Pakistan in June, he said.

The bank plans to reduce its U.K. retail banking cost-to- income ratio by three percentage points to 54 percent over the next three years. It increased its Tier 1 ratio, a measure of capital strength, to 7.8 percent from 7.7 percent and set a new four-year ``economic profit'' goal of as much as 10.6 billion pounds through 2011, up from 8.3 billion pounds through 2007.

Lloyds TSB Group Plc, the U.K.'s No. 1 provider of unsecured loans, announces full-year results on Feb. 22. Royal Bank of Scotland Group Plc, the second-biggest U.K. bank, reports on Feb. 28, followed by HSBC Holdings Plc, the biggest bank, on March 3.

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

Last Updated: February 19, 2008 13:37 EST