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Barclays profit beats forecasts, bonuses halved

LONDON (Reuters) - British bank Barclays Plc BARC.L said bonus payments across the bank would almost halve for 2008 as it reported a 14 percent drop in annual profit and said it faces a tough year ahead.

A pedestrian passes a branch of Barclays bank in Kensington, London February 9, 2009. REUTERS/Andrew Winning

Its 6.1 billion pounds ($9.01 billion) profit beat expectations, however, and the bank’s shares jumped over 12 percent in early trading on Monday.

Barclays has been hit by losses on structured products and the slowing UK economy, but it has raised funds privately and has not taken taxpayer cash, unlike two of its biggest rivals.

Bad debts are expected to rise this year, but credit market losses should shrink, it said.

“2009 will be another tough year. In 2008 we’ve had a crisis in the banking system; the principal issue for 2009 is going to be rapid economic slowdown, in a sense more a familiar but nonetheless (a) pretty brutal slowdown in economic growth all around the world,” said Barclays Chief Executive John Varley.

The UK economy was likely to contract by at least 2 percent this year, he said.

Barclays has had a good start to the year with an “extremely strong” performance at its Barclays Capital (BarCap) investment bank arm, the group said.

It plans to restart paying dividends in the second half of this year and said it will put more attention on returns and shrink the balance sheet over time.

In the face of a mounting political and public backlash against the bankers’ bonuses, Varley said bonuses would be down 48 percent from 2007 across the group. The fall in BarCap and its Barclays Global Investors (BGI) asset management business would be bigger than that.

“What we have heard today is reassuring compared with what we heard before but it’s not completely reassuring,” said Jane Coffey, head of equities at Royal London Asset Management, the bank’s 34th largest investor, according to Thomson Reuters data.

She said a big jump in the balance sheet size was alarming, and investors would want reassurance that risk exposure hadn’t increased. “As with all banks they are trading at a big discount because there is that nervousness,” Coffey said.

“WE DO NOT NEED MORE CAPITAL”

Barclays’ 2008 pretax profit was down from 7.1 billion pounds in 2007 but ahead of an average forecast of 5.8 billion from 13 analysts polled by Reuters Estimates.

The figure included 8 billion pounds in gross writedowns and bad debts, or a 5 billion net writedown after gains on the valuation of debt it carries on its books.

Profit included 2.4 billion pounds in gains on acquisitions, most related to its purchase of Lehman Brothers’ U.S. business.

BarCap’s profit was down 44 percent at 1.3 billion pounds and BGI’s profit fell 19 percent. Profits in UK retail banking rose 7 percent to 1.4 billion pounds, but there was a 7 percent fall in commercial bank profits.

Its equity tier 1 ratio was 6.7 percent at the end of the year, up from 5.1 percent a year earlier, which it said gave it a cushion to absorb rising bad debts.

“We do not need more capital,” Varley told reporters on a conference call. “These ratios are well ahead of the minimum required by the Financial Services Authority, and create a substantial loss-absorption capability.”

By 1130 GMT Barclays shares were up 8.1 percent at 113.3 pence, among the biggest risers in the FTSE 100 share index .FTSE, after hitting a high of 117.5p.

Barclays shares have endured a roller-coaster ride this year, slumping to a 24-year low of 47.3 pence last month but doubling since. They are still down 26 percent this year.

The bank has raised funds with investors in Qatar, Abu Dhabi, Singapore, China and Japan in the past year, but angered many traditional shareholders for the attractive terms offered.

Barclays said it will have strategic flexibility and a competitive advantage over part-nationalized rivals Royal Bank of Scotland RBS.L and Lloyds Banking Group LLOY.L.

($1=.6774 pounds)

(Additional reporting by Raji Menon)

Editing by John Stonestreet, David Holmes and Mike Nesbit

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