The house that was built on structured credit appears to have weathered the storm – or at least better than many.
It hasn’t of course come out unscathed. Amid Barclays’ remarkably resilient year-end results, the juggernaut that was Barclays Capital has been brought almost to a halt.
In the heady days of the first half of last year, BarCap, headed by Bob Diamond, outshone the UK retail and business banking operations, posting pre-tax profit of £1.7bn, way ahead of UK banking’s £1.4bn.
In the second half of the year, it was reined in, ending the year with profit of £2.3bn, against the UK’s £2.7bn. In other words, BarCap added just £675m of profit in the second half of the year. But even that, after credit market losses of £1.64bn, is probably considered something of a triumph – a 5 per cent gain for BarCap across the year.
Of a total of £1.64bn in credit losses in 2007, only £795m has gone through the income statement, and that £1.64bn is net of £658m of “gains arising from the fair valuation of notes issued by Barclays Capital.”
So it sounds like BarCap raised debt sometime before the credit squall really got going, and is now being helped out by the widening spreads, and declining carrying value, on that issuance.
Counter-intuitive, perhaps – but there you go.
In terms of what has actually gone into that £1.64bn, it’s all a tad unclear. Even with the benefit of note 18, which starts down on page 61.
There’s £846m, which includes £722m of losses against ABS CDO super senior exposure, £60m of other credit market exposure and £58m on committed leveraged finance positions. We’d note that £58m, on drawn leverage finance positions of £7.4bn looks a little puny.
Barclays’ monoline exposure, which Bob Diamond on Tuesday professed himself “not uncomfortable” with, rose by a factor of 10, from £140m at the half year stage to £1.4bn by the end of December. Barclays’ has £1.3bn of hedges against its £6bn gross ABS CDO super senior exposure, none of which is with monolines – which rather begs the question of who it is with.
Elsewhere writedowns of £823m net come on other US subprime and Alt-A exposure, and its exposure to the monolines and CMBS. But we can’t see what write-downs, if any, Barclays has taken on its ballooning exposure to assets backed by a monoline guarantee – or indeed on its £5bn exposure to subprime or £4.9bn exposure to Alt-A.
As analysts at KBW put it, “bears will continue to muse over the near term outlook for Barcap revenues, while questioning the prudence of current writedowns.” And Credit Suisse’s difficulties in making its numbers add up only provides additional bearish angst.
Related links
Barclays chief hails ‘resilient’ performance – FT.com