Credit Trends Deteriorating
1% pre tax consensus beat — Profit before tax of £2,754m was 1% ahead of
consensus but 2% below our £2,800m forecast. While operating profits were
slightly better than expected, helped by lower staff costs, both structured
credit
losses and loan impairments were worse than anticipated.
Pre provision benefits from lower costs — Excluding credit market write downs
pre provision profits were £6,050m, 5% higher than our forecast (£5,772m).
Within this, revenues were 1% better than expected and costs were 2% lower.
In total pre provision profit benefited from £344m of one-off gains from
property sale and leaseback (£120m), VISA
IPO (£93m) and acquisitions and
restructuring (£131m).
Credit quality weakening fast — Underlying credit quality appears to have
deteriorated rapidly in 1H08 with the loan impairment charge (before credit
market write downs) 40% higher than 1H07 at £1,340m. The outlook also
appears to be deteriorating with NPLs up 54% (1H08 annualised), faster than
the 42% (1H08 annualised) increase in risk tendency following a rise of 4% in
2H07.
Structured credit write downs worse than expected — Having taken £1.7bn of
write downs in 1Q08 a further £1.1bn of losses occurred in the second quarter.
Offsetting this is a £0.8bn gain on the fair value of BarCap debt which was
close to zero at the end of April 2008.
Capital still weak after equity raising — The 1H08 Equity Tier 1 ratio is
reported as 5.0% but falls to 4.6% after stripping out Tier 1 deductions (vs.
CIR 4.7%). The £4.5bn capital raising should add 130bp, leaving the ratio
below 6% and amongst the weakest in Europe.
Outlook "remains tough" — Further weakening is expected in the South African
and Spanish retail operations as well as the UK as all three geographies suffer
a cyclical downturn. The US portfolio “will also be affected by a more difficult
environment”.
Where & when — Analyst presentation 09.30 (1 Churchill Place, Canary Wharf,
London E14), Dial In 0845 401 9092 (UK) or +44 (0) 20 3023 4419 quoting
'Barclays Announcement’. Live webcast
www.investorrelations.barclays.com.
