BARCLAYS MAKES HUGE PROFIT
Barclays Plc, the U.K.’s second- biggest bank, may say first-half profit rose 28 percent, led by fees from arranging corporate debt sales and a one-time gain from exchanging its own bonds.
Net income probably climbed to 2.2 billion pounds ($3.6 billion) from 1.72 billion pounds a year earlier, according to the average estimate of five analysts surveyed by Bloomberg. Profit from investment banking may have doubled to 2 billion pounds. The bank reports earnings at 7 a.m. London time Aug. 3.
Barclays is expanding its securities unit after Chief Executive Officer John Varley avoided a government bailout and the restrictions that would have come with it. In September, the company bought the North American unit of Lehman Brothers Holdings Inc., the biggest U.S. bond trader, boosting earnings from fixed-income trading as credit markets thawed.
“We’re expecting a pretty strong performance from Barclays Capital in particular,” said Ralph Brook-Fox, a fund manager at Glasgow-based Ignis Asset Management, which oversees 4.5 billion pounds of U.K. equities, including Barclays shares. “It’s clear markets such as fixed income, currencies and commodities have been very strong.”
Investment banking boosted second-quarter profit at Goldman Sachs Group Inc., Deutsche Bank AG and Credit Suisse Group AG. Goldman Sachs posted record net income of $3.44 billion as trading and stock underwriting reached all-time highs.
Bond Swap
Barclays also will report a one-time gain from swapping its own bonds for more junior debt. The bank has said it expects to book a pretax profit of 800 million pounds on the transaction.
Barclays may use rising profit to bring its writedowns into line with those of its U.K. peers, easing criticism that the bank didn’t correctly value its assets after markets plunged, Brook-Fox said.
“That would be something taken positively by the market because that area of criticism would be taken off the table,” he said.
Barclays has taken $20 billion of writedowns since the credit crisis began in 2007, less than HSBC Holdings Plc, Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc.
The bank has valued assets equal to 184 percent of its tangible capital using internal models based on “unobservable” data, according to a June note from Hank Calenti, a London-based credit analyst at Royal Bank of Canada. That compares with 58 percent at Edinburgh-based RBS and 46 percent at HSBC in London.
Barclays Finance Director Chris Lucas said in May that impairment charges and other provisions may rise 50 percent this year after jumping 79 percent to 2.3 billion pounds in the first quarter.
Bad Debt Charges
First-half writedowns will be about 3.3 billion pounds, Deutsche Bank AG analyst Jason Napier said in a July 20 note to clients. Barclays’s risky assets may have increased because of investments tied to bond insurers, or “monolines,” he said.
Earnings from consumer and commercial banking will decline 46 percent as rising unemployment in the U.K. hinders customers’ ability to repay debts, the analyst survey showed.
Sales of bonds worldwide rose 27 percent from a year earlier to $2.5 trillion, the most in at least a decade, as companies sought to shore up balance sheets amid the worst recession in a generation, data compiled by Bloomberg show.
Barclays Capital maintained its position as the world’s biggest underwriter of international bond sales, beating New York-based JPMorgan and HSBC, according to Bloomberg data. The bank backed $211 billion of offerings in the period, compared with $171 billion a year earlier.
“Barclays Capital will have strong gross revenues based on good debt trading and debt origination,” said Mike Trippitt, a London-based analyst at Oriel Securities Ltd., who has a “buy” rating on Barclays.
Rankings Rise
The Lehman purchase helped make Barclays the world’s sixth- biggest mergers and acquisitions adviser this year, up from 65th in 2007, Bloomberg data show. Morgan Stanley, Goldman Sachs and JPMorgan are the top three.
Paul G. Parker, Barclays’s global head of M&A, said in May that Barclays intends to become one of the three leading securities firms across all regions and product lines.
Barclays stock tripled in the past six months, making it the best performer in the 63-member Bloomberg Europe Banks and Financial Services Index. The shares fell 2.7 pence, or 0.9 percent, to 302.3 pence today in London trading.
Barclays rejected a government bailout in October, then opted out of the state asset protection program in March. The company instead sold 5.3 billion pounds of stock and convertible notes to the Qatar and Abu Dhabi sovereign wealth funds.
BGI Sale
The bank agreed in June to sell its fund management unit, Barclays Global Investors, for $13.5 billion to boost capital reserves. Barclays’s Tier 1 capital ratio, a measure of financial strength, will rise to 8.2 percent after the BGI deal, the analysts said. It was 6.7 percent of the end of last year.
The BGI sale will cost Barclays a division that generated 15 percent of the group’s profit while offloading 1 percent of its risky assets, said Sandy Chen, a London-based analyst at Panmure Gordon & Co., who has a “sell” rating on the stock.
“Disposals of core or non-core assets can be value dilutive after a one-off gain,” Chen said.
