Barclays, Britain's third-biggest bank, said yesterday profits jumped 15 per cent to a record last year, just beating analysts' forecasts as higher investment banking income offset a big rise in bad debts.
Expansion in the bank's international business easily outpaced domestic growth, where it is struggling to turn around the Woolwich mortgage business and lost further market share.
Barclays' 2005 pretax profit was £5.28 billion, up from £4.58 billion in 2004 and above an average forecast of £5.205 billion from 13 analysts polled by Reuters.
Barclays, the first major UK-listed bank to report 2005 results, said profits at its investment banking arm Barclays Capital jumped 25 per cent to £1.27 billion.
Rapid growth at BarCap - which is active in commodities, credit and equities as well as fixed income - has driven profits in recent years. Bob Diamond, head of the investment bank arm, said its pipeline was stronger than ever.
By noon yesterday, Barclays shares were down 0.3 per cent at 642 pence, up five per cent in the last year, and valuing the bank at £42 billion.
"The gem is that 40 per cent of earnings is from outside the UK... Barclays Capital and Barclays Global Investors (BGI) are hugely impressive and the Absa South Africa business is doing pretty well," said David Dodds, investment analyst at SVM Asset Management. "The UK retail division still has problems, there's no doubt about that."
Overseas business has doubled its share of group earnings in the last five years and chief executive officer John Varley said even without acquisitions he expects UK and overseas profit contributions to be in balance in three years.
Profits in UK banking showed modest growth of eight per cent, to £2.46 billion. Barclays said the unit's costs as a percentage of income fell more than expected to 54 per cent from 57 per cent, and it aims to cut the ratio to 50 per cent in 2007. Barclays is attempting to revive its core retail bank, but suffered a setback in December when the UK head resigned less than a year after unveiling a three-year turnaround plan.
Barclays said its UK mortgage balance fell to £59.6 billion, down three per cent from the start of 2005 and mid-year, despite estimated growth of 10 per cent in the broader UK market, led by rivals HBOS and Northern Rock.
"We were promised a turnaround in this business and perhaps it's a little clearer now why management change has taken place within their UK bank," said Simon Maughan, analyst at Dresdner Kleinwort Wasserstein.
"Unless HBOS and Northern Rock step back, Barclays is facing a long uphill struggle in mortgages," Mr Maughan said, adding its share price is likely to be driven by the UK business. Mr Varley acknowledged that the Woolwich mortgage unit - bought for £5.4 billion in 2000 - continued to lose market share.
"We're a big player in the UK mortgage market with six per cent of the mortgage stock but our share of flow in 2005 was disappointing and I want to put that right in 2006," Mr Varley said on a conference call.
Barclays said group bad debt charges jumped 44 per cent last year to £1.57 billion, in line with analysts' expectations. The bank said the underlying rise in bad debts was 24 per cent. Barclaycard profits fell 19 per cent to £687 million, hit by a big rise in bad debt charges for UK credit cards.
"We will remain selective (on lending) and it's right that we should, as I see some caution among consumers over 2005 and 2006. But are we frozen in the headlights of some economic downturn? No not at all," Mr Varley said.
Barclays said investment in its US card unit Juniper also hit Barclaycard's profits, but it was confident the US card business will be profitable in 2007.
Absa, the South African bank in which Barclays bought a 56 per cent stake last year for $4.4 billion (£2.5 billion), contributed £335 million to earnings, while profits at fund unit BGI leapt 61 per cent to £542 million.