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Barclays Discloses $2.7 Billion Writedown

Reuters.com
Thursday, 15 Nov 2007 | 8:11 AM ET

Barclays, Britain's third-biggest bank, unveiled a 1.3 billion pound ($2.7 billion) writedown on its exposure to credit market problems on Thursday, less than was feared.

A woman leaves a branch of Barclays Bank in central London, Monday, April 23, 2007. ABN Amro NV and Barclays PLC announced Monday they have agreed to merge, in the largest cross-border combination in European banking history. (AP Photo/Sang Tan)
Sang Tan
A woman leaves a branch of Barclays Bank in central London, Monday, April 23, 2007. ABN Amro NV and Barclays PLC announced Monday they have agreed to merge, in the largest cross-border combination in European banking history. (AP Photo/Sang Tan)

In a surprise trading update the Barclays Capital investment bank unit said it would write down 500 million pounds for the July-September quarter and 800 million pounds for October.

Barclays shares jumped over 6 percent after the update, but pared gains as analysts said BarCap's growth this year will be restricted by market turmoil.

Analysts said the shares rose because the writedown was less than persistent recent speculation had suggested and as the bank had provided greater detail on all its exposure.

"What the market wants is to drill through numbers... I don't see that amount of detail in the numbers we have here," Michael Browne, from Sofaer Global Research, told "Squawk Box Europe."

"The devil, as always, is in the details."

Income Absorbed Writedowns

BarCap said its pretax profit for the 10 months to the end of October was ahead of a year before at 1.9 billion pounds after writedowns.

"We had a very strong income month in October and that's enabled us to absorb those writedowns," said John Varley, Barclays chief executive, adding that BarCap's income was a record for any month in the fourth quarter.

"We have been conservative, but we've also been firing on a lot of our cylinders in the income line and that enables us to report the results we've reported today," he told reporters on a conference call.

Rivals including Citigroup and Merrill Lynch have announced multi-billion dollar writedowns as they face up to a meltdown in mortgage securities and troubles in the U.S. mortgage backed collateralized debt obligations (CDOs) market.

BarCap said the October writedown reflected the impact of rating agency downgrades on a broad range of CDOs and the subsequent market downturn.

Optimistic About Next Year

It continues to have exposure to some areas under pressure, but the bank said it had sought to limit any future writedowns by valuing all its residential mortgage backed securities CDO collateral and second lien mortgage collateral at zero.

Financial Implications of Barclays' Announcement
Barclays unveiled a $2.7 billion writedown at its investment unit Barcap on Thursday, due to its exposure to the credit market. CNBC's Ross Westgate talks to Thomas Tilse, head of portfolio strategy at Cominvest AM, and Nicu Harajchi, managing director at N1 Asset Management, about the financial implications of Barclays' announcement.

The credit market turmoil was sparked by a U.S. subprime mortgage crisis, but Barclays said it was optimistic markets such as leveraged finance will recover by early next year.

"This is going to be a one to two year workout period for subprime, the issues are deep and the excesses were severe so there will be a period to transfer the risk from those people who shouldn't have it to those that should," Bob Diamond, head of BarCap, said on the conference call.

"But that doesn't necessarily have to have contagion into leveraged finance and other credit.

"I would still be optimistic that going into the first quarter of next year in leveraged finance the new issue pipeline will come back and be operating again," Diamond added.

Barclays shares had fallen 15 percent in the month before Thursday's bounce on fears it faced big losses. Last week it denied speculation it was about to announce a $10 billion writedown and that its top management would quit.

Other banks have announced almost $50 billion of losses and writedowns in the past month.

- CNBC.com contributed to this report

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