Barclays Profit Set to Benefit From Lower Writedowns on Investment Banking

Barclays Plc, the first of Britain’s biggest five banks to report annual earnings, may say profit before one-time gains advanced last year, helped by a decline in writedowns at its investment banking unit.

Pretax profit excluding asset sales rose to 5.7 billion pounds ($9.2 billion) from 5.3 billion pounds in 2009, according to the median estimate of 21 analysts surveyed by Bloomberg. The London-based bank reports earnings at 7 a.m. on Tuesday Feb. 15.

“The big focus for investors will be on how Barclays Capital is doing,” said Colin Morton, who helps manage about $1.5 billion at Leeds, England-based Rensburg Fund Management Ltd., including Barclays stock. “It’s the predominant division and the most volatile from one quarter to the next.”

Full-year revenue at the unit, which generates about two- thirds of the bank’s profit, may decline 29 percent to 12.7 billion pounds, the analysts said. Revenue at the division, run by Rich Ricci and Jerry Del Missier, may have lagged competitors Goldman Sachs Group Inc. and Deutsche Bank AG in the fourth quarter as income from trading bonds, currencies and commodities dried up.

Barclays Capital’s revenue probably fell 25 percent to 2.72 billion pounds in the fourth quarter from a year earlier, according to seven analysts. That compares with a 10 percent decline in revenue at Goldman Sachs and a 30 percent rise at Deutsche Bank’s securities unit.

Photographer: Tomohiro Ohsumi/Bloomberg

Barclays Plc Chief Executive Officer Robert Diamond is reviewing which of the lenders’ operations aren’t generating sufficient returns. Close

Barclays Plc Chief Executive Officer Robert Diamond is reviewing which of the lenders’... Read More

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Photographer: Tomohiro Ohsumi/Bloomberg

Barclays Plc Chief Executive Officer Robert Diamond is reviewing which of the lenders’ operations aren’t generating sufficient returns.

Barclays Capital, which has included the North American operations of Lehman Brothers Holdings Inc. since 2008, will probably post a 67 percent increase in pretax profit to 4.11 billion pounds for the full-year, helped by a decline in writedowns, Mark Phin, an analyst at Keefe, Bruyette & Woods Ltd. in London said in a note to investors last month.

Job Cuts

Robert Diamond, 59, Barclays Capital’s former chief who replaced John Varley as chief executive officer last month, is reviewing which of the lenders’ operations aren’t generating sufficient returns. The bank seeks to achieve a return on equity of 15 percent. Barclays, which has eliminated almost 2,000 jobs this year, may give more details of the review when reporting earnings, analysts said.

“With a new CEO in place, there is heightened expectation of potential strategy changes,” Robert Law, an analyst at Nomura Holdings Inc. in London, said in a note to investors this week. “The market will be looking for mention of specific initiatives to address group returns.”

Full-year group net income probably fell to 3.2 billion pounds in 2010 from 9.39 billion pounds in 2009, according to a median estimate of 13 analysts. The London-based bank reaped a 6.33 billion-pound gain in 2009 from the sale of Barclays Global Investors, its asset management unit, to BlackRock Inc.

Spanish Bad Loans

The bank said in November third-quarter profit fell 76 percent to 327 million pounds as revenue at Barclays Capital declined.

Barclays’s corporate banking unit may swing into profit in the final quarter, according to the analysts. The division made a pretax loss of 414 million pounds in the first nine months of the year from bad loans in Spain and Portugal.

In the past month, 13 analysts rated the bank a “buy,” seven a “hold” and two said investors should sell the stock. The shares have gained 13 percent in the past year to close at 313.25 pence yesterday. The stock trades at 0.74 times its book value, less than HSBC Holdings Plc, Standard Chartered Plc and Lloyds Banking Group Plc.

The table below shows analysts median estimates for 2010 in the millions of pounds.

              2010 Estimate     2009 Actual    No. of Analysts


Net income            3,195            9,393             13

Pretax                5,700            5,311             21
profit

Bad loan Provisions  -5,510           -8,071              7

BarCap Revenue       12,669           17,862              7

To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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