Barclays profit up 8 percent, bad debts almost double

Barclays Plc fell short of expectations with an 8 percent rise in half-year profit as bad debts at Britain's second biggest bank almost doubled to offset buoyant earnings from its enlarged investment bank.

Impairments and credit provisions on loans that have soured jumped 86 percent to 4.56 billion pounds for the half year.

There have been signs of a slowdown in the rate of increase or even stabilization, but bad debts are likely to top 9 billion pounds for the full year, up from 5.4 billion in 2008, the bank said. In some of our loans books we've seen the rate of deterioration reducing and some signs of stabilitisation, Barclays Chief Executive John Varley told reporters on a conference call.

By 0740 GMT Barclays shares were up 2.5 percent at 309.95 pence while the pan-European sector <.SX7P> was up 0.6 percent.

Analysts blamed the profit miss on slightly higher than expected bad debts and a charge of almost 900 million pounds related to the carrying value of its own debt, which was higher than had been expected.

CAPITAL STRENGTH

But analyst Ian Gordon at brokerage Exane BNP said Barclays had also soothed lingering concerns about its capital strength by reporting a higher than expected core tier one capital ratio of 8.8 percent.

The big positive is capital, which was half a percent above market expectations, he said. This is a key issue given the apparent market consensus that Barclays is still weak on capital and I think this fairly powerfully disposes of that argument.

Barclays reported a pretax profit in the six months to the end of June of 2.98 billion pounds, up from 2.75 billion a year ago but below the average analyst forecast of 3.5 billion from seven analysts polled by Reuters.

Trends seen in the first half continued in July and the bank said the difficult environment would remain.

Profits at Barclays Capital, the investment bank arm, doubled from a year ago to 1.05 billion pounds from 524 million, thanks to its acquisition of Lehman Brothers in the United States and strong debt, currency and commodities revenues.

BarCap reported a 4.68 billion pound writedown on credit market exposures, including impairment on loans of 1.17 billion.

Profits in UK retail banking tumbled 61 percent to 268 million pounds and knocked its commercial bank profits 42 percent lower to 404 million.

Barclays said it was comfortable with analysts' forecasts that bad debts would be between 9 billion pounds and 9.6 billion for 2009 as a whole.

We feel that's a reasonable estimate from what we see today about impairment for the full year, Robert Le Blanc, Barclays risk director, told reporters.

(Editing by David Holmes)