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Barclays Profit Falls 76%, Capital Remains ‘Strong’

Barclays Profit Declines 76% on Securities Unit Loss
Robert "Bob" Diamond, president of Barclays Plc. Photographer: Chris Ratcliffe/Bloomberg

Barclays Plc, Britain’s third-largest bank, said its capital ratio remained “strong” as quarterly profit fell 76 percent on lower revenue at the investment banking unit.

Pretax profit in the three months to Sept. 30 dropped to 327 million pounds ($527 million) from 1.36 billion pounds in the year-earlier period, the London-based company said today in a statement, missing the 797 million-pound median estimate of four analysts surveyed by Bloomberg. Barclays Capital, the investment banking unit formerly led by Chief Executive Officer- designate Robert Diamond, posted a pretax loss of 182 million pounds from a profit of 369 million pounds.

Barclays’s capital ratio “is a lot better than people will expect and should be taken really well by the market,” wrote Michael Helsby, an analyst at Bank of America Merrill Lynch, who has a “buy” rating on the stock. The Core Tier 1 ratio, a measure of financial strength, was 10 percent, unchanged from the first half, Barclays said. The shares rose.

Diamond, 59, will replace CEO John Varley, 54, next year as the bank seeks to shift its reliance on the investment bank, which generates two-thirds of profit, to the rest of the group. Barclays doesn’t intend to seek additional funding from shareholders even as new international capital regulations affect its ability to generate earnings, Diamond said in September.

Lower Provisions

Group revenue in October was “consistent” with the rest of 2010, the bank said, while Barclays Capital’s October income was in line with the third quarter, the bank said. Barclays’s bad loan provisions declined 27 percent to 1.2 billion pounds, the company said.

The results were “alright,” said Julian Chillingworth who helps manage $21 billion including Barclays shares at Rathbone Brothers Plc in London. “They had lower provisioning, which means they could get away without a rights issue.”

Barclays should, but won’t raise additional capital, wrote Mike Trippitt, an analyst at Oriel Securities Ltd., in a note to investors last week. Standard Chartered Plc this month raised 3.3 billion pounds in a rights offering to boost capital.

“Our income and profit performance was resilient for the first nine months of 2010 despite a subdued economic environment,” Varley said in the statement. “Capital, leverage and liquidity ratios remain strong,” Barclays said.

‘Not Good Numbers’

“These are not good numbers,” wrote Bruce Packard, an analyst at Seymour Pierce in London who has a “hold” rating on the stock. The bank’s shares are “unlikely to perform while momentum slows” at the investment bank.

The stock gained 4 percent to 297 pence at the close of London trading, the best performer in the five-member FTSE 350 Index of U.K. banks. The bank is down 11 percent in the past three months, the second-worst performance in the index.

Revenue at Barclays Capital declined 24 percent to 2.8 billion pounds as earnings from fixed income, currency and commodities trading fell by 28 percent, while equities and prime services fell by 34 percent in the third quarter, the bank said. Operating expenses at the division were little changed at 1.8 billion pounds.

“Market conditions remained challenging in the third quarter of 2010, with income also affected by a seasonal reduction in activity,” Barclays said in the statement.

Barclays posted a 947 million-pound charge on the value of its own bonds. Barclays Capital would have made a profit of 765 million pounds if the debt revaluation was excluded, the bank said.

Bonus Allocation

Royal Bank of Scotland Group Plc last week reported a 9 million-pound loss at its investment bank after charges linked to the revaluation of its own debt, compared with a profit of 321 million pounds a year ago. Credit Suisse Group AG, the No. 2 Swiss bank, posted a 395 million-franc ($410 million) profit at its securities unit during the period from 1.75 billion francs a year ago.

Barclays set aside a total of 2.2 billion pounds for bonuses for 150,000 people across the company this year, Finance Director Chris Lucas told analysts on a conference call today. The bank increased the compensation ratio at the investment bank to 43 percent of revenue from 42 percent in the first half. It employs 25,000 people at Barclays Capital, up from 23,000 last year.

Pretax profit in global retail banking declined 9 percent to 1.37 billion pounds in the first nine months of the year.

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