Barclays ups writedown to $3.1 billion

Tue Feb 19, 2008 5:59am EST

By Steve Slater and Clara Ferreira-Marques

LONDON (Reuters) - Barclays Plc (BARC.L: Quote, Profile, Research), Britain's third-biggest bank, raised its 2007 writedown on the value of risky assets to 1.6 billion pounds ($3.1 billion) but reported profits broadly in line with analysts' expectations.

Barclays is the first big UK bank to report earnings after a turbulent year and analysts said Tuesday's numbers -- including a lower-than-expected 300 million pound increase in writedowns and a 10 percent dividend rise -- were good news for the sector.

"Overall, the numbers came in broadly in line with our expectations and consensus, and that's a relief," said Mamoun Tazi, analyst at MF Global. "BarCap performed in line despite the writedowns, which highlights the fact the underlying business is very strong."

Barclays reported a 2007 pretax profit of 7.08 billion pounds, down from 7.14 billion in 2006 but just above an average forecast of 7.05 billion from Reuters Estimates. Underlying profits, which exclude sales of businesses, rose 3 percent.

The bank said it is confident it knows where its risks are and is comfortable with the current levels of writedowns, but its shares were still hit by a surprise near $3 billion writedown at Credit Suisse (CSGN.VX: Quote, Profile, Research) that showed markets remain tough and exposures can change quickly.

At 5:03 a.m. EST, Barclays was down 1.6 percent at 452.5p, after a 7.6 percent rally on Monday, valuing it at 28 billion pounds.

Profits at Barclays Capital, its investment bank arm, rose 5 percent to a record 2.34 billion pounds, above expectations.

UK banking was in line with expectations and both retail banking and Barclaycard, where profits rose 18 percent, benefited from a drop in bad-debt charges, although there was a jump in impairments on U.S. subprime mortgages.

U.S. SLOWDOWN

Barclays is striving to reassure investors it can grow its domestic and international retail arm and has a clear strategy after losing a bid battle to buy Dutch rival ABN AMRO last year which would have made it a top 10 global bank.

Overseas businesses contributed two-thirds of group profit, compared with just 20 percent in 2003, and the bank added 600 international branches, boosting distribution by a third.

"Our performance in 2007 gives us a lot of confidence," John Varley, chief executive, told reporters on a conference call.

"The market threw pretty much everything it could do at the capital markets businesses and you can see the results that Barclays has generated."

An immediate concern is the impact of the credit crunch. Global banks have lost over $140 billion from their exposure to risky assets, and capital markets business has slowed sharply.

Varley said BarCap had seen "good performance on the income line" in capital markets businesses in the first weeks of 2008.

Bob Diamond, head of BarCap, said "very difficult and challenging market conditions" would continue for the next six months, but said a U.S. economic slowdown could be "shorter and shallower" than the consensus forecast.

He said the threat of further writedowns would largely depend on economic and market conditions, but he was comfortable with the risks facing the bank, including potential losses from trouble in the U.S. bond insurance sector.

BarCap's losses arising from credit-market turbulence were 1.64 billion pounds last year, net of gains of 658 million pounds from widening credit spreads which reduced the carrying value of notes held on its balance sheet.

Barclays had previously announced a 1.3 billion pound net writedown on assets linked to U.S. subprime mortgages, which included 400 million in gains on valuation of notes.

The bank said its exposure to collateralized debt obligations stood at 6 billion pounds before hedging, while its exposure to Alt-A mortgages -- which are of higher quality than subprime loans but also considered risky -- rose to 4.9 billion and its exposure to U.S. monoline insurers totals 1.3 billion.

"I can't predict where the markets are going this year but I'm confident that we know where our risks are," Diamond told Reuters in an interview.

BarCap would use the tough market conditions to build up in the United States, he said.

Barclays lifted its final dividend to 22.5 pence per share, raising its full-year payout to 34 pence, up 10 percent.

(Editing by Quentin Bryar)