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Barclays reveals sub-prime losses Barclays reveals sub-prime losses
(about 1 hour later)
Barclays has confirmed that it did not escape the woes from investments in risky US home loans, taking a hit of £800m ($1.64m) in October. Barclays has confirmed that it did not escape the woes from investments in risky US home loans, taking a hit of £800m ($1.64bn) in October.
Sub-prime losses at its Barclays Capital investment bank arm now total £1.3bn, taking into account a £500m write down in the third quarter.Sub-prime losses at its Barclays Capital investment bank arm now total £1.3bn, taking into account a £500m write down in the third quarter.
The write down was less than feared, and the bank said Barclays Capital profits were higher than last year.The write down was less than feared, and the bank said Barclays Capital profits were higher than last year.
Rumours had circulated that the bank was hiding big mortgage-backed losses.Rumours had circulated that the bank was hiding big mortgage-backed losses.
"Today's extensive disclosure demonstrates the strength and resilience of our performance during the year and in particular during the turbulent month of October," said Barclays chief executive John Varley."Today's extensive disclosure demonstrates the strength and resilience of our performance during the year and in particular during the turbulent month of October," said Barclays chief executive John Varley.
However, the bank also said Barclays Capital still had exposure to investments in packages of debt, which includes exposure to US sub-prime mortgages. However, the bank also said Barclays Capital still had more than £5bn worth of exposure to investments in packages of debt, which includes exposure to US sub-prime mortgages.
Shares in Barclays jumped 31.5p, almost 6%, to 564.5p in early trade. "The scale of the losses are certainly not in line with the worst case scenario which some had been factoring in," said Richard Hunter, head of UK equities at stockbrokers Hargreaves Lansdown.
Sub-prime exposure "Barclays Capital as a whole improved on its 2006 performance - quite an achievement given the wider global trading concerns," he added.
Barclays shares have taken a beating in recent weeks rumours persisted that the bank could have a black hole of as much as £10bn as a result of huge exposure to sub-prime US mortgages, which have collapsed over the summer. Shares in Barclays jumped almost 6% after the announcement, which was made two weeks before the bank was scheduled to give a trading update.
The meltdown occurred as a result of a combination of higher interest rates and a slowdown in house price growth, which hit the ability of low income home buyers to meet their mortgage repayments.
Subsequently, it emerged that this high-growth market over the past few years was one of the key factors behind the profitability of global banks.
UBS, HSBC, Merrill Lynch and Citigroup are some of the banking giants that have recently disclosed billions of dollars in losses after being caught out by the sub-prime fallout.
Both Charles Prince at Citigroup and Merrill Lynch's Stan O' Neal were forced to step down after the banks' admitted far-reaching problems as a result of heavy investments in mortgage-related securities.
In the UK, Royal Bank of Scotland is scheduled to deliver a trading statement on 6 December, which will be closely watched for bad news.