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Last Updated: Thursday, 15 November 2007, 18:26 GMT
Barclays reveals sub-prime losses
Barclays Bank sign

Barclays has confirmed that it did not escape the woes from investments in risky US home loans, taking a hit of 800m ($1.64bn) in October.

Sub-prime write-downs at its Barclays Capital investment bank arm now total 1.3bn, taking into account a 500m write-down in the third quarter.

The write-down was less than feared, and the bank said Barclays Capital profits were higher than last year.

Rumours had circulated that the bank was hiding big mortgage-backed losses.

"Today's extensive disclosure demonstrates the strength and resilience of our performance during the year and in particular during the turbulent month of October," said Barclays chief executive John Varley.

The bank also said Barclays Capital still had more than 5bn worth of exposure to investments in packages of debt, which includes exposure to US sub-prime mortgages.

However, despite the problems the bank said it still managed to make a pre-tax profit of 1.9bn in the first 10 months of 2007 even after it wrote down the losses.

Tougher times

"The scale of the losses are certainly not in line with the worst case scenario which some had been factoring in," said Richard Hunter, head of UK equities at Hargreaves Lansdown.

"Barclays Capital as a whole improved on its 2006 performance - quite an achievement given the wider global trading concerns," he added.

BBC business editor Robert Peston
Is it back to business-as-usual for Barclays? Absolutely not
Robert Peston, BBC business editor

Shares in Barclays jumped almost 6% after the announcement, which was made two weeks before the bank was scheduled to give a trading update.

The bank's shares ended the day down 2.5 pence, or 0.47%, at 530.5p but they outperformed the FTSE 100 stock index, which fell 1.13%.

Barclays shares have taken a beating in recent weeks as rumours persisted that the bank may have to write down as much as $10bn of losses related to investments linked to the US sub-prime mortgage market.

A combination of higher interest rates and a slowdown in house price growth has had a serious impact on the sub-prime market, which focuses on people with poor or non-existent credit histories.

In recent months, the higher borrowing costs have made it harder for many borrowers on low incomes to meet their mortgage repayments, and repossessions have soared.

Far reaching

UBS, HSBC, Merrill Lynch and Citigroup are some of the banking giants that have recently disclosed billions of dollars in losses after being caught out by the sub-prime fallout.

Charles Prince at Citigroup and Merrill Lynch's Stan O' Neal were forced to step down as chief executives after their banks' admitted far-reaching problems as a result of heavy investments in mortgage-related securities.

The BBC's business editor Robert Peston said that: "The performance of Barclays Capital, through the wild storms in credit markets of the past few months, has been incomparably better than that of Citigroup and Merrill."

Mr Peston said that this was "no small achievement" because Barclays Capital was a market leader in reprocessing low-quality US sub-prime loans into the allegedly high-grade bonds of collateralised debt obligations.

He explained that Barclays managed to avoid the worst of the crisis by offsetting their risk in other markets and with other investments, and by reducing their exposure as the problems in the sub-prime sector emerged.

In the UK, Royal Bank of Scotland is scheduled to deliver a trading statement on 6 December, which will be closely watched for bad news.

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