Barclays' balance sheet is now larger than the annual output of the entire UK economy after ballooning to more than £2tn in 2008, it revealed today.
As the bank attempted to win over sceptics concerned about potential black holes in its Barclays Capital investment banking division, the chief executive, John Varley, insisted the sheer size of the bank's assets and liabilities would not be a source of instability for the bruised financial system. The annual output of the UK economy is about £1.5tn.
Varley defended the bank's accounting policies, which have fuelled concerns about potential losses, by reporting profits of £6.1bn – helped by a £2.2bn gain from the acquisition of the US businesses of Lehman Brothers last year.
The shares, whose performance Varley described as "bad" after losing 70% since October, rose 11% to 116.2p after the headline profits were higher than the £5.3bn promised in his open letter to shareholders last month.
As the row heightened over the role bankers have played in fuelling the economic downturn, Varley admitted he was concerned about the impact on staff morale. He did not want employees to "be defensive" if "asked in the pub" what they did.
He acknowledged, though, that he was "sorry ... unequivocally and unambiguously" for the events that brought the banking industry to its knees and forced Royal Bank of Scotland and the newly created Lloyds Banking Group to receive more than £37bn of taxpayer funds.
"We feel the heat individually and as an organisation," he admitted.
Although Barclays avoided the government bail-out by turning to Middle Eastern investors for fresh funds, it may yet accept the state's help to ringfence its toxic assets by participating in its multibillion-pound insurance scheme. Varley acknowledged that doing so would require Barclays to be subjected to government oversight of its pay and lending policies – something it worked hard to avoid.
"We have to make a decision in due course whether it would make economic sense for us to participate in the asset protection scheme," Varley said.
He was "completely confident" the bank would not need to turn to the taxpayer for any direct capital injection.
The banking crisis has forced Barclays to backtrack on the goals it set last year to achieve by 2011 and intends to announce new targets which Varley acknowledged "must be tough".
But, he insisted, the bank was on track to resume dividend payments, halted by the capital-raising demanded by the Financial Services Authority last October, in the second half of 2009. This assurance came despite his warning that the environment would be "hard", particularly as the bank expects the UK economy to contract 2% this year and house prices to fall another 15%.
He highlighted the possibility of increased provisions against customers failing to pay loans on time in the UK, Spain, South Africa and the US.
Alex Potter, banking analyst at Collins Stewart, said: "The outlook is pretty bleak. The accounting rules applying to the Barclays balance sheet are unhelpful to say the least." He claimed they had the effect of inflating the value of the bank's balance sheet.
The explosion in its balance was due to international accounting practices relating to its derivatives exposure, and the bank argued it would be £900bn less under US accounting rules.
Bruce Packard, analyst at Evolution Securities, said: "Barclays blames much of this increase on international financial reporting standards not allowing banks to net off exposures to the same counterparty.
"But we think that, following the collapse of Lehman, it is right to worry about these netting arrangements, and the IFRS accounting treatment should raise questions about exactly what Barclays is doing."
As the bank attempted to win over sceptics concerned about potential black holes in its Barclays Capital investment banking division, the chief executive, John Varley, insisted the sheer size of the bank's assets and liabilities would not be a source of instability for the bruised financial system. The annual output of the UK economy is about £1.5tn.
Varley defended the bank's accounting policies, which have fuelled concerns about potential losses, by reporting profits of £6.1bn – helped by a £2.2bn gain from the acquisition of the US businesses of Lehman Brothers last year.
The shares, whose performance Varley described as "bad" after losing 70% since October, rose 11% to 116.2p after the headline profits were higher than the £5.3bn promised in his open letter to shareholders last month.
As the row heightened over the role bankers have played in fuelling the economic downturn, Varley admitted he was concerned about the impact on staff morale. He did not want employees to "be defensive" if "asked in the pub" what they did.
He acknowledged, though, that he was "sorry ... unequivocally and unambiguously" for the events that brought the banking industry to its knees and forced Royal Bank of Scotland and the newly created Lloyds Banking Group to receive more than £37bn of taxpayer funds.
"We feel the heat individually and as an organisation," he admitted.
Although Barclays avoided the government bail-out by turning to Middle Eastern investors for fresh funds, it may yet accept the state's help to ringfence its toxic assets by participating in its multibillion-pound insurance scheme. Varley acknowledged that doing so would require Barclays to be subjected to government oversight of its pay and lending policies – something it worked hard to avoid.
"We have to make a decision in due course whether it would make economic sense for us to participate in the asset protection scheme," Varley said.
He was "completely confident" the bank would not need to turn to the taxpayer for any direct capital injection.
The banking crisis has forced Barclays to backtrack on the goals it set last year to achieve by 2011 and intends to announce new targets which Varley acknowledged "must be tough".
But, he insisted, the bank was on track to resume dividend payments, halted by the capital-raising demanded by the Financial Services Authority last October, in the second half of 2009. This assurance came despite his warning that the environment would be "hard", particularly as the bank expects the UK economy to contract 2% this year and house prices to fall another 15%.
He highlighted the possibility of increased provisions against customers failing to pay loans on time in the UK, Spain, South Africa and the US.
Alex Potter, banking analyst at Collins Stewart, said: "The outlook is pretty bleak. The accounting rules applying to the Barclays balance sheet are unhelpful to say the least." He claimed they had the effect of inflating the value of the bank's balance sheet.
The explosion in its balance was due to international accounting practices relating to its derivatives exposure, and the bank argued it would be £900bn less under US accounting rules.
Bruce Packard, analyst at Evolution Securities, said: "Barclays blames much of this increase on international financial reporting standards not allowing banks to net off exposures to the same counterparty.
"But we think that, following the collapse of Lehman, it is right to worry about these netting arrangements, and the IFRS accounting treatment should raise questions about exactly what Barclays is doing."
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