Credit card bad debts will weigh down Barclays full year earnings |
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Wed, 30 Nov 2005 17:30
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LONDON: Barclays yesterday said bad debts had risen at its credit card business but insisted that full year profits would still be close to market expectations.
In a statement that kicked off a series of trading updates, the bank said it expected earnings to rise above £5bn despite concerns among investors that the bank may not be able to meet growth forecasts due to rising costs and bad debts. Analysts have forecast full year profits before tax at about £5.18billion for 2005.
The group said business at its investment bank and fund management division had shown consistent growth justifying the outlook that full year performance would be in line with previous guidance, excluding Absa its South African business.
Effective cost control and a decent rise in revenues was reflected in the growth rate at its retail banking arm. The bank considered it as “significant progress” in its efforts to increase productivity and sustain profitability in tough market conditions. The bank is ranked third among Britain’s most profitable banks after Bank of Scotland and HBOS.
The profit graph at Barclays Capital, the group’s investment banking arm, also showed an upward trend reflecting a steady inflow of investment with operating expenses and performance-related costs indicating parallel spikes. Rising costs reflected the more generous bonuses given to star bankers, but this was offset against a matching growth in revenues, the bank reassured. The bank had recently recruited more staff which is expected to add to costs.
Barclays Global Investors, the group’s fund management business, reported similarly “excellent” performance.
When asked whether rising bad debts would not reflect in the balance sheet, the group’s finance director Naguib Kheraj clarified that it did not mean there were more defaults during the year, but that the average balances of debt had risen.
He explained that consumers with heavy debt burdens were becoming more sensitive to small changes and they were particularly hit by the higher energy and utility bills this year.
Analysts argue that the bank may like to whitewash certain aspects of its business but the fact remains that it is finding it increasingly difficult to make recoveries from its debtors, resulting in more debts being written off each quarter. Raising interest on credit cards debts, as Barclays did recently, may not really help cover the risk of a bad debt, they insist. Barclays card holders will have to pay more interest on their debts from December.
The report about growing bad debts made Barclay share price slide to 584p at one point.
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