Surprise Barclays profit rise proves pessimists wrong

Barclays surprised the stock market today with a modest rise rather than the widely forecast fall in its profits for the third quarter.

Chief executive Bob Diamond said: "This is a pretty reassuring set of numbers given how difficult the environment has been.

"Market conditions have been very challenging, but every part of the business apart from BarCap has improved profits, and even BarCap has outperformed against the other investment banks," he added.

Stripping out one-off factors, like the gains on the value of Barclays' own debt and a writedown of the value of its stake in fund manager BlackRock, underlying pre-tax profits rose 5% to £1.34 billion. Strong performances in the UK retail bank and Barclaycard offset the fall in profits at the investment bank.

Diamond sought to reassure investors with a categorical statement that the bank has no plans to raise new capital by issuing shares.

He said: "With the recent events in the eurozone and the stress tests, the question of more capital gets asked from time to time. We are generating enough cash for our business needs and our regulatory capital is well above the required levels."

Barclays reduced its exposure to sovereign debt in Greece, Ireland, Portugal, Spain and Italy by 31% to £8 billion in the last quarter. Total exposure to Greece is £219 million of which only £23 million is sovereign debt.

Turmoil in the financial market saw BarCap's income fall 15% to £2.25 billion with underlying profit before tax halved at £388 million. Diamond said: "Capital markets remained difficult in October, but have shown some improvement since the announcement by eurozone leaders last week."

Across the whole group 3500 jobs have gone so far this year and Diamond said he expected that trend to continue.

The weaker performance at BarCap was offset by a strong show in UK retail banking which saw revenues increase 21% to £1.2 billion and pre-tax profits more than double to £494 million. Barclaycard's pre-tax profits increase 54% to £378 million.

Diamond said he did not expect capital market conditions to improve until at least next year, but he said that the bank remained on track to beat its target of achieving costs savings of
£1 billion.

For the first nine months of the year profits are up 18% at £5 billion.

Ian Gordon at Evolution Securities, said: "We knew the third quarter wouldn't be pretty, but this is a thoroughly respectable performance."