UK banks Barclays, HSBC upbeat on bad loans

By Adam Jones

Barclays underlying profits have more than doubled in first nine months of 2009.

STORY HIGHLIGHTS

Barclays, HSBC say that investment divisions continue to drive growth
Barclays to resume shareholder payments; underlying profits more than double
Barclays' pre-tax profit for the first nine months of 2009 was £4.542bn
HSBC chief executive: "I believe biggest jolt has now passed global economy"

Barclays and HSBC both reported good news on bad loans on Tuesday as their investment banking arms continued to drive growth.

Barclays said it would resume payments to shareholders with a 1p per share dividend after its underlying profit more than doubled in the first nine months of 2009.

The group also said that a better-than-expected economic environment meant that its loan impairments for the year as a whole would be at the lower end of a previously forecast £9bn-£9.6bn range after slowing in the third quarter.

The figures chimed with a later trading update from HSBC, which said underlying profit for the first nine months of the year had been stronger than its expectations at the start of the year, while loan impairment charges had fallen to their lowest quarterly level in over a year.

"I believe the biggest jolt has now passed through the global economy. But it is too early to claim victory, especially while unemployment is still rising in the west," said Michael Geoghegan, HSBC chief executive.

Shares in Barclays, which have rebounded vigorously in 2009, fell 2 per cent to 335½p in early morning trading on Tuesday. HSBC shares rose 4 per cent to 716.6p.

Barclays' statutory pre-tax profit for the first nine months of 2009 was £4.542bn, a 19 per cent decline on the figure reported for the first nine months of 2008. However, pre-tax profit was £4.413bn when distorting items such as one-off acquisition gains and debt buy-backs were stripped out, an increase of 116 per cent.

For the third quarter of the year, Barclays' pre-tax profit was £1.558bn, compared with £2.841bn in the third quarter of 2008, although underlying performance was again almost unrecognisably distorted by various accounting items, including a "movement on own credit" deduction resulting from fair value fluctuations linked to certain instruments it sells.

Barclays' strong underlying performance was driven by Barclays Capital, its investment banking unit, whose pre-tax profit for the first nine months was £2.714bn, excluding an "own credit" charge.

The group said it was too early to say how large the bonus payments would be for Barclays Capital's employees.

Chris Lucas, Barclays finance director, said the views of stakeholders such as employees, shareholders and the "broader community" would be taken into account when setting the bonuses.

For the overall group, the nine-month annualised loan loss rate was 136 basis points, against the 144 basis points for the first half of the year. Barclays said loan impairments were still expected to rise in the final quarter of the year, in line with seasonal trends.

The 1p per share interim dividend will be paid on December 11. The distribution will be the first since Barclays decided not to pay a final dividend for 2008, blaming increased regulatory capital requirements.

HSBC provided fewer concrete figures in its update. It said pre-tax profit in the third quarter was "significantly ahead" of the same period of 2008, excluding fair value fluctuations related to its own debt. Its investment banking arm "maintained its record performance for the year to date".

At HSBC's US consumer finance division -- the black sheep of the group because of its exposure to subprime lending -- loan impairment allowances declined in the third quarter in the first quarterly fall since the start of 2006, the group said.