BANKING giant Barclays said yesterday that first-quarter profits would plummet after a downturn at its investment arm.
The group said the first quarter downturn reflected the fact that Barclays Capital – the powerhouse of the business – would be “well down” on 2007.
In a statement issued on the day of its annual meeting in London, chief executive John Varley said overall trading during January and February had been flat, with “tougher” conditions in March bringing the quarter down. The bank’s retail and commercial arms came in ahead of 2007, he said.
Although there were no detailed numbers, the update heightened nerves in the banking sector and sent Barclays shares down 2%.
Collins Stewart banking analyst Alex Potter warned the group may have made little profit last month when the financial markets were rocked by the bail-out of US investment bank Bear Stearns.
He has downgraded the stock from buy to sell: “Barclays has performed well in the year to date relative to Royal Bank of Scotland and domestic banks, but we now feel it is time to cut positions for safety.” Barclays, which employs around 800 people at Wavertree Technology Park, has been tipped to follow the lead of rival Royal Bank of Scotland (RBS) and raise new capital from investors to bolster its balance sheet amid hefty credit crunch write-downs.
RBS asked shareholders for a £12bn cash boost this week after revealing an extra £5.9bn of investment write-downs for this year. Mr Potter forecast that Barclays could be forced to ask investors for £8bn.
Mr Varley made no explicit statements about the need for extra funding, but said: “We will remain active managers both of our balance sheet, and of our capital ratios.”
Barclays investment banking arm contributed a third of the group’s £7bn profits last year.
It saw the division’s supremo, Bob Diamond, pick up a pay package worth more than £21m for the year, and the issue could face tough questions during today’s AGM. In his statement, Mr Varley said the second half of 2007 was “as hard a six-month period as I can remember”, with conditions in some markets in 2008 “remaining difficult”. He added: “We must maintain a sense of perspective. Interest rates are moving lower.”
tonymcdonough
