LONDON (Reuters) - British bank Barclays (BARC.L) is confident of meeting expectations for 4 percent earnings growth this year and said diversification had provided some shield from turbulence in capital markets, boosting its shares.
Britain’s third-biggest bank said on Tuesday it should deliver a 2007 pretax profit of 7.1 billion pounds ($14.7 billion), up from underlying profit of 6.8 billion in 2006.
By 1050 GMT Barclays shares were up 4.5 percent at 520 pence, the top performing FTSE 100 .FTSE stock, as analysts welcomed an improvement in impairment trends and no deterioration at the Barclays Capital investment banking arm.
“What we’ve had today is a reassuring update — earnings and capital are in line with consensus,” said Ian Gordon, analyst at Exane BNP Paribas, adding the absence of an update on BarCap indicated there had been no immediate increase in writedowns.
“It’s a stock that’s trading on a derisory P/E (price to earnings ratio) of 7.2 times 2007 earnings,” Gordon added.
The FTSE 100 trades on a P/E of about 11.2, but the ratio for the UK bank sector has dipped under 9 after a sharp sell-off.
Barclays is striving to reassure investors it can grow its domestic and international retail arm and has a clear strategy after losing a bid battle to buy Dutch rival ABN AMRO earlier this year, which would have made it a top 10 global bank.
More worrying for investors — and a reason for a 20 percent tumble by its shares in the last seven weeks — are fears of a sharp slowdown in growth at its investment bank arm and speculation of funding problems due to a global credit crunch.
Barclays said its liquidity remained strong and it continued to see good inflows of deposits.
Its performance in the first nine months of this year was underpinned by “good” profit growth in UK retail after the impact of refunds on bank charges and at asset manager Barclays Global Investors.
It reported “strong” profit growth at its Barclaycard credit card unit excluding one-off items, “excellent” profit growth at Barclays Wealth and “very strong” income growth in its international businesses outside South Africa. It opened 278 new overseas branches in the first nine months of the year.
Bad debts at Barclaycard and for UK unsecured lending continued to improve, it said.
The bank had already said its Barclays Capital investment bank unit would take a 1.3 billion pound writedown for losses on securities linked to the U.S. subprime housing crisis.
Barclays said its UK Banking business should cut the ratio of costs to income to 50 percent this year, excluding the impact of refunds on charges, from 52 percent in 2006.
Refunds to customers who had claimed back bank charges will be about 117 million pounds this year. Barclays refunded 87 million pounds in the first half and another 30 million pounds before Britain’s regulator allowed banks to suspend claims in July, Finance Director Chris Lucas told analysts.
UK business banking profits had also shown good growth in income and profits, the bank said.
Depreciation in the South African rand would leave Absa’s profit contribution down on the year in sterling terms, despite strong growth in local currency terms. BGI’s profit growth in sterling would also be dampened by the weak U.S. dollar.
Editing by David Cowell