Barclays reported lower profits but upped the dividend. But Credit Suisse produced a horror story...
After last week's halved profits and litany of excuses from buy-to-let lender Bradford & Bingley
(LSE: BB.)
, all eyes were on today's numbers from Barclays
(LSE: BARC)
for the latest lowdown on the subprime shakeout.
Particularly with Credit Suisse ‘fessing up to taking a further $1bn (£515m) hit on this year's first quarter profits.
But for Barclays, the statement was something of an anticlimax. Second-half profits did decline 21%, but with analysts expecting a larger slump, pulses were hardly sent racing.
Yet while shareholders will be happy with the 10% dividend hike, more bad news could still be in the pipeline.
Net second-half income for the UK's third-biggest bank declined to £1.8bn after the Barclays capital markets division made a dodgy debt charge of just £1.6bn. Mind you, it shows how battle-hardened we have become to the US mortgage mess that single-digit billion write-downs are considered almost good news!
A 30% slide at Barclays Capital contributed to an overall 14% pre-tax profit drop to £2.96bn. UK banking was little changed at £1.29bn yet Barclaycard's return more than doubled to £268m.
Rumours had been circulating that one or two soon-to-report banks were on the verge of upping their dividends, and so it proved. The 10% lift in the final payout to 22.5p has to be an expression of confidence amid all the gruesome write-offs in the financial sector.
Subprime losses of more than $145bn have so far been racked up globally, with widespread fears of far more to follow.
Still, even after all the bad news we've had recently, today's announcement from the second-largest Swiss bank Credit Suisse probably couldn't have been forecast. The bank said today that bond "pricing errors" and "significant adverse market developments" will chop about $1bn from first-quarter profits.
Even in these extraordinary days of ongoing banking blunders, this one really does take the biscuit.
That's because the disclosure comes just a week after the Zurich-based company unveiled net write downs of $1.8bn for last year and said it had "more optimism than many" about prospects for a debt market recovery. It's also two days after the Qatar Investment Authority (QIA) said it was buying shares in Credit Suisse.
Now the bank admits that 2007 earnings could also be hurt.
Shares in the Swiss banking behemoth plunged over 10%, the most in more than five years, on the news. And although the stock has since rallied to a mere 6% decline on the day, I do wonder what the Qataris think about it all. Apparently, according to Bloomberg, the head of strategic and private equity at the QIA wasn't answering his phone this morning.
Though I bet he's keeping a pretty close watch on the bank's credit default swaps (CDS). These are a form of insurance which investors can buy to protect themselves against possible non payment. CDS costs rise if fears grow over credit quality.
So with the price of Credit Suisse's subordinated debt soaring to record levels today, temperatures won't be falling at the QIA.
Which brings us neatly back to Barclays...
Because a similar trend applies to Britain's third largest bank, where CDS prices have been motoring relentlessly upwards since July last year and more than doubling in 2008 alone.
That makes me nervous that someone out there knows a bit more than I do about Barclays balance sheet, and that there could be more unpleasantness on the way. Indeed, the bank admits that the outlook remains "challenging".
There's no doubt that, having underperformed the FTSE index by 37% over the last year, Barclays is now cheap. But despite the stock's low valuation, with both yield and price to earnings ratio (PER) both around 7, I'd be prepared to wait for more credit crunch calamities before investing.
More: An Insecure Home For Your Money
