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Barclays Raises Writedowns, CEO Optimistic

CNBC.com
Tuesday, 19 Feb 2008 | 10:56 AM ET

Barclays raised the value to its 2007 writedowns to 1.6 billion pounds ($3.1 billion), but its profit was in line with expectations and the risks are under control, Barclays President Bob Diamond told CNBC Europe on Tuesday.

Sang Tan

Pretax profit for 2007 was 7.08 billion pounds, down from 7.14 billion in 2006 but just above an average forecast of 7.05 billion from a Reuters Estimates poll of 21 analysts.

Barclays had previously announced a 1.3 billion pound net write-down on assets linked to U.S. sub-prime mortgages, which included 400 million in gains on valuation of notes.

"Frankly, I think the surprise is how strong the underlying results were," Diamond told "Squawk Box Europe."

Relief that the bank's profit came in as expected boosted shares, which traded more than 4 percent up at 479 pence.

In the morning, shares had fallen nearly 3 percent, alongside a weak European bank sector after a big write-down from Credit Suisse. They rallied 7.6 percent rally on Monday.

The credit business at its investment banking arm Barcap fell by 50 percent ,but other businesses such as currencies, commodities, equities, brokerage, as well as the bank's Asian and African businesses, posted gains of over 50 percent, he said.

"There's not a single risk on our balance sheet in Barcap that we weren't aware of in July," Diamond added. "We do feel confident in our marks, we feel confident in our positions."

Underlying profits rose 3 percent excluding the sale of businesses that boosted 2006 earnings.

"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 write-downs, which highlights the fact the underlying business is very strong."

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

Confidence

Barclays said it benefited from its diversity and had coped well with credit market turbulence in the second half of 2007.

"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."

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

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

"By the second half of the year, we'll be talking about U.S. growth, not U.S. recession," Diamond told "Squawk Box Europe."

Data on labor markets as well as corporate credit data would still have to be watched for signs of weakness, he added.

The threat of further write-downs would largely depend on economic and market conditions, he said, adding he was comfortable with the risks facing the bank.

Losses arising from credit-market turbulence were 1.64 billion pounds last year, net of gains from the valuation of issued notes of 658 million pounds.

The bank lifted its final dividend to 22.5 pence per share, raising its full-year payout to 34 pence, up 10 percent from 2006 and just ahead of a Reuters Estimate average forecast of 33.7p.

"I think what the dividend yield shows you is that the shares are still cheap," Diamond said.

-- Reuters contributed to this report

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