Barclays Is Clearly in Good Shape

Over the past few years, Northern Rock (NHRKF.PK) the “Yes, Yes” bank and Barclays (BCS) have resided at different ends of the banking competence spectrum.

The Rock’s nickname grew from its retail mortgage application form which basically consisted of two questions: 1. Do you want to buy a house? 2. Are you breathing? Answer yes to both questions and in all probability you would be the proud owner of a new home with its top-of-the-market bubble valuation only needing to vaguely resemble the size of attached mortgage debt.

If you were to take a different path in your efforts to secure debt, say for example to the magnificent Barclays head office in Canary Wharf, London, you would meet finance professionals with brains the size of the nearby Millennium dome who could fill your day with essays on risk management and the structuring of debt.

I am sure there are better reasons why one of the two had to be saved by the taxpayer whilst the other is making billions of pounds in profit in the depths of a global recession, but I like those examples.

And looking back just a few months, it's clear one of the biggest financial opportunities of the past year wasn’t shorting the banking sector late in 2008 (the volatility was too stressful and the government too interfering), but buying Barclays at 55p when the circulation-hungry tabloids had perfected the art of publishing financial Armageddon articles.

However, it was genuinely difficult not to be sucked into the spiral of selling and economic depression. But now with the benefit of hindsight, investors with cash to spend would give their stockbroker’s right arm to turn the clock back, to re-live those once in a decade buying opportunities. Unfortunately, in March few investors bought into the financial sector and fewer still had the nerve to buy and hold until their equity had grown 500%. That is the headline percentage, from 55p to more than 300p that the brave and lucky few who bought BARC at the trough of the market are now enjoying.

It’s not just BARC shareholders that have had a good few months either. Barclays’ investment banking staff are having a jolly good 2009 too. Average earnings for the 22,000 employees came in at £100,000 for the first six months of the year. The average figure includes more humble payments made to support staff, of which there is an army, so there must be some pretty substantial salaries and payments in the mix for the average to be so high.

To be fair, Barclays didn’t have a free lunch from the government, didn’t collapse, remains profitable and pays tax – as do the UK based staff, so overall the bank’s success should be welcomed.

Moving onto the H1 earnings data, the financials and forward looking guidance make more than satisfactory reading for investors with profit before tax up 8% to £2,984 million. Income rose impressively by 37% to £16,253 million. Prior to the report, analysts had put forward widely varying forecasts with the most pessimistic commentator predicting a loss of -£5,361 million. The most bullish observer forecasted profits of £7,622 million.

The wide range of forecasts can be attributed to the guess work needed to identify default levels on big ticket corporate loans. Now the figures are in, it’s clear that Barclays is in good shape indeed.

Disclosure: no interest.