Barclays announced that its first half profit increased an impressive 29 percent, while provisions for bad loans relieve the decline in investment banking revenue. According to their most recent financial report, Barclays’ net income rose to 2.43 billion from 1.89 billion (all in Euro) within a span of three years. This revelation from Barclays takes the same route as HSBC and Lloyds Banking Group, with the two reporting a gain in first half profit as provisions for bad loans decreased by as close as to a third of 3.1 billion Euro.
The revenue at Barclays Capital, the investment banking unit spearheaded by Robert Diamond, declined at 32 percent as income from rates and commodities declines as well. However, the costs at the unit rose by a third compared to the costs of last year.
According to Robert Diamond, they had a hard time going through the second quarter. It was a tough time for them because clients were then taking lesser risks during the particular period of May and June. However, they were able to feel some hope during the second half of July, where they felt more activity in the market. But despite a much brighter future, Diamond said that he does not want to predict anything, especially as to how everything will turn out for the second half, although he admits that it looks more positive this time.
In London on the other hand, the stock fell as much as 5.25 percent. In a related concern, Julian Chillingworth, the fund manager at Rathbone Brothers said that the market is going to be upset at the rise in costs. Furthermore, they said that the banking business will be predominantly fueled by Barclays Capital. However, he also believes that the picture for investment banking in the coming months is going to be clouded, at best.
There is also a decline of about 40 percent as far as the revenue from trading bonds, currencies and commodities are concerned. Sales at Barclays Capital’s equities and prime services unit which will provide services to hedge funds, also fell 18 percent tantamount to about 1.06 billion Euros because of the slowdown in equity derivatives. And because of that, Barclays has been greatly dependent on Barclays Capital for its earnings after selling its Barclays Investors fund management unit to BlackRock for 15.2 billion dollars, in December last year just to avoid government intervention or bailout.
According to one analyst at Credit Suisse named Jonathan Pierce, Barclays’ numbers are generally in line and the Barclays Capital revenues are going strong relative to its peers. However, the forecast for Barclays Capital full-year revenue might come under pressure, especially that costs are overshooting estimates. For Pierce, he believes that there is better value elsewhere.
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