London: Barclays is not seeking capital from private investors or the state as it remains profitable and can absorb a 2008 writedown of £8 billion, the British bank said on Monday, sending its shares soaring.
In an unprecedented move after its shares almost halved last week, Barclays repeated a forecast on 16 January that its 2008 pretax profit would be “well ahead” of £5.3 billion ($7.3 billion) and include the impact of £8 billion in gross writedowns, and said it had made a good start to 2009.
Shares in the bank were 43.8% higher at 73.6 pence by 0924 GMT although that was only enough to take them back to around Thursday’s opening price and still left them trading at one tenth of their value in February 2007.
The statement gave a boost to other bank stocks, with Lloyds Banking Group jumping 18 percent and Royal Bank of Scotland gaining 12%.
“There will still be scepticism in the market but it’s a very powerful statement,” said Ian Gordon, analyst at Exane BNP Paribas.
Marcus Agius, Barclays chairman, said in a statement made available to Reuters: “The bank has taken significant writedowns in a very challenging environment, but record income levels across the business mean it remains profitable and well capitalised. We seek no further capital.”
Writing in an open letter to customers and shareholders, Agius and chief executive John Varley said the 2008 profit estimates included all costs, impairment and market valuations.
It included gains stemming from its acquisition of Lehman Brothers’ North American business and the sale of its closed life unit but that overall the projected profit reflected “strong operating profit generation”.
Good Start To 2009
Analysts said the profit and writedowns were in line with expectations after the 16 January statement, but could reassure some investors who were wary the bank was not being conservative enough with its valuations of assets hit by the credit crisis.
Agius and Varley said the letter aimed to address “the principal causes of concern which we are hearing”.
Barclays said net of gains on the valuation of debt it carries on its books, hedging and attributable income, the bank’s writedowns for the year would be about £5 billion.
“These figures demonstrate that although we have been heavily impacted by the credit crunch, our income generation was at a record level in 2008 and has enabled us to withstand this impact and still produce strong profits,” they wrote.
Exane’s Gordon said Barclays’ capital position was slightly weaker relative to peers but that it was “adequate, and adequate is what counts”.
“If Barclays is able to avoid capital raising until after the end of June it would unwind much of the damage done in the past week, as it would avoid triggering the anti-dilution clauses in the west Asia contracts,” Gordon added.
If Barclays raises capital before the end of June investors from Qatar and Abu Dhabi who provided funds last year would receive more shares for no extra cost, which would dilute other investors.
Shares in Barclays have lost more than two-thirds of their value over the last two weeks amid concerns the bank will be forced to raise fresh capital or even be part-nationalised as writedowns mount in tandem with the slowing global economy.
But Barclays said it had £36 billion in committed equity capital and reserves and that it was not seeking new capital from anywhere. Its year-end equity tier 1 ratio was about 6.5% and its tier one ratio was about 9.5%.
Its capital exceeded the UK regulatory minimum by “an amount equivalent to some £17 billion of pretax profit”, the letter said.
The bank said it had seen “a good start to 2009” and that customer activity levels had been high.
“In particular the operating performance of Barclays Capital, benefiting as it is from the now completed integration of the Lehman business, has been extremely strong.”
The bank said it would bring forward the release of full 2008 financial results to 9 February.