Barclays today brushed aside rising bad debts to post half year profits of almost £3 billion sterling, less than a year after the banking system came perilously close to collapse.
Group profits were up 8% in the six months to June 30, helped by a strong performance for the bank's investment arm. But write-downs rose to £4.56 billion, an increase of 86% on a year earlier following further losses on credit market exposures and charges on the deteriorating quality of loans.
Barclays was the first of its UK peers to reveal its half year results and is likely to have fared much better than its government-backed counterparts Lloyds Banking Group and Royal Bank of Scotland.
The global retail banking arm saw profits down 61% to £268m in a 'challenging' economic climate. Barclays Capital - the firm's investment banking division - posted a 100% increase in profits to £1.05 billion.
The bank's CEO John Varley expressed confidence that Barclays would remain profitable for the rest of the year.
But he said the firm's economic profit targets for the period from 2008 to 2011 - set before the onslaught of the financial crisis - is 'unlikely to be met' because of new requirements for lenders to hold greater levels of capital following the banking meltdown last year.
Barclays, which has remained independent of Government aid, said it has upped its lending to UK customers to £17 billion for the first half, divided equally between domestic and business.
The bank, in common with its rivals has been hit by rising levels of bad debts as the recession takes its toll.
'In some of our loan books we have seen the rate of deterioration reducing and some signs of stabilisation,' Mr Varley said.
But he warned that the full scale of bad debts may take time to appear. 'Unemployment has a lagging effect on bad debts but the rate of deterioration is reducing,' he explained.
The bank said small improvements were appearing in the UK, US and other parts of its business.
The bumper performance of Barclays Capital was seen as a key driver for the rise in group pre-tax profits, which rose to £2.98 billion in the half year.
Barclays Capital salvaged the investment banking business from the wreckage of failed Lehman Brothers and the growth reflects the benefits of the acquisition.
The division's huge gains will fuel speculation that executives will be in line for giant pay and bonus deals this year. Remuneration is a thorny issue for banks after the UK government bail-outs of last year and its policies will be scrutinised for signs of a return to the old days of high risk and big rewards.
But Mr Varley said the firm would not make a decision on the matter until the end of the year.
Staff costs increased 36% to £4.8 billion and the bank said this was driven by a 32% rise in salaries and incentive payments, primarily in Barclays Capital.
Barclays said this reflected the inclusion of the acquired Lehman Brothers' North American businesses.
Mr Varley said Barclays would continue to stay in the black for the rest of 2009. 'The trends that lie behind our operating performance in the first half of this year were again observable in July,' he said.
'We are realistic about just how difficult the environment is, and will remain, but we are committed to delivering another year of solid profitability through our continued emphasis on serving our customers and clients,' he added.
Shares in Barclays closed at 6.7% higher at 322.55 pence in London this evening.
