Britain's Barclays said its investment bank arm traded profitably last month and its prospects remain strong, despite the credit market turmoil, but the bank's offer for ABN AMRO could be beaten.
Bob Diamond, president of Barclays, said year-to-date profits in the Barclays Capital investment bank unit he heads were well ahead of a year earlier, driving Barclays shares more than 3 percent higher at one point on Monday.
Barclays Capital traded profitably in August 2007, after full allocation of costs and the mark to market of all positions, Diamond said at a Lehman Brothers bank conference in New York. It followed a profitable July.
A credit squeeze has gripped financial markets in recent weeks, increasing costs for banks and companies to borrow money and drying up liquidity for many financial products, fuelling concern that bank revenues will slow and hitting share prices.
Barclays shares have fallen 15 percent since the end of July, which has cut the value of its mostly shares takeover offer for Dutch rival ABN to under 60 billion euros ($82.8 billion), more than 10 billion euros below a rival offer.
Barclays is competing with a consortium led by Royal Bank of Scotland for ABN, in what would be the biggest bank takeover.
The bad news is if the consortium still wants to pay that price, if it's comfortable with the risks on the balance sheet during the turmoil, if they can raise that money in the market and if the regulators are going to allow ... this kind of complex transaction, then that price will probably beat ours, Diamond said.
But there are a lot of ifs between now and then. We have to take into context that the market environment has changed, he said. Do we still want ABN? Yes.
He said that because Barclays' offer was mostly in shares it means that the majority of the price we were willing to pay was hedged in a down market.
By 1430 GMT Barclays shares were up 1.3 percent at 590 pence, after hitting as high as 607p shortly after the comments, making it one of the top performing UK blue-chip stocks.
WE'VE HAD SOME PAIN
Barclays has suffered in recent weeks from concern that BarCap may be exposed more than rivals to highly leveraged debt vehicles or other more complex financing products, but Diamond downplayed the worries.
As and when we see the markets recover it will be clear that Barclays has managed both our risks and our clients' effectively through this period, he said via a Web cast.
BarCap's growth goal of at least 15 percent annually through the cycle remained intact and it was well positioned for future growth despite market turbulence, he said.
We feel confident that these businesses will continue to grow at the rate that we've always projected, Diamond said.
While we've experienced pain in some areas, we've benefited in others, he said, saying commodities and equity derivatives business had been strong in August, and revenues benefited from the bank's broad product platform.
We believe we'll benefit in this environment because when markets are turbulent there's always a flight to quality, and with that an opportunity to capture market share from competitors who are less well positioned.
The underlying fundamentals of the corporate credit market remained strong and Diamond said he expected to see the market move back to more normal issuance levels in 2008.
Barclays Global Investors, the asset management arm, and Barclays Wealth, the private banking business, both performed well in July and August, he added.
(Additional reporting by Clara Ferreira-Marques)