Barclays Profit Hit by Big Loss at Investment Banking

By DAVID JOLLY

Barclays, the British bank, said Tuesday that third-quarter profit fell by more than three-fourths from a year earlier, dragged down by an accounting charge at its investment banking unit that overshadowed a stable underlying picture.

The bank, based in London, had a pretax profit of £327 million, or $528 million, compared to £1.4 billion for the same three months in 2009.

Barclays Capital, the investment banking division, took a charge of £947 million, sending the unit to a loss of £182 million despite performing fairly well in a relatively weaker market. The business had a profit of £369 million in the same period a year ago.

The charge, which is not a cash item, resulted from marking-to-market the prices of debt the company itself had issued. The category is highly volatile; Barclays had reported a £953 million gain on its own debt in the second quarter.

Without the charge, Barclays’ profit would still have been down on a year-to-year basis, but only slightly, at £1.3 billion.

Barclays Capital revenues, at £2.8 billion, were in line with analysts’ expectations.

The bank surprised analysts with third-quarter loan impairments of only £1.2 billion, smaller than many had anticipated, Ian Gordon, a banking analyst at Exane BNP Paribas in London, wrote in a note. An impairment is money set aside for a loan that the bank thinks may not be repaid.

Barclays might have been unduly conservative in its previous estimates, he said, and given that the market had been expecting bigger provisions, “this item may trigger upgrades” from analysts on Barclays stock.

The shares were up 2.9 percent in London late morning trading.

John Varley, who is stepping down as chief executive in 2011, described Barclays’s income and profit as “resilient” in the first nine months of the year, despite a “subdued economic environment and moderate volumes.”

Mr. Varley will be replaced in March by Robert E. Diamond Jr., the American executive who has led the bank’s international expansion. Barclays has been raising its profile overseas since it acquired Lehman Brothers’ North American business in 2008.

Mr. Varley said the bank had gotten a better handle on its loan loss rate and overall impairment charges. “Our capital, leverage and liquidity ratios remain strong,” he added. “We are well equipped to deal with regulatory change as Basel III is implemented between now and 2019.”

The investment banking business held up well compared with “a very strong year in 2009,” Barclays’s finance director, Chris Lucas, said in a conference call. The unit’s fixed income, currency and commodities overall income declined 37 percent, while its equities and prime services top-line income fell 23 percent.

The fourth quarter has gotten off to a relatively good start, executives said in the conference call with reporters.

Unlike many of its peers, Barclays did not seek a direct government bailout when the credit crisis hit. It reported a core Tier 1 capital ratio, a measure of financial strength, of 10.0 percent at the end of September, unchanged from the prior quarter.

The company does not break out its net profit on a quarterly basis, but Mr. Lucas said the third-quarter figure would be “a relatively small number.”

He also noted that Barclays investment banking unit had paid out 43 percent of its third-quarter income in compensation, up from 42 percent in the first half of the year. Asked to justify that number at a time when bank pay is a politically sensitive issue, he said “it’s the markets at play.”

So far in 2010, the bank’s 150,000 global employees are on track to receive £1.3 billion in discretionary cash bonuses, £300 million in long-term compensation, and £640 million in payment of deferred compensation from prior years. (Fonte: New York Times)