If you trust in Barclays Capital, you must be a buyer today.
Barclays' (LSE: BARC) shares are down 3%, despite it reporting a 44% rise in first-half profit before tax to £3.9 billion. Traders apparently have "jitters" over the results.
Are they justified? True, crucial Barclays Capital looks mildly off-the-boil. But overall the results read like another endorsement of a management team that rode the credit crisis like a water ride at Alton Towers.
Diluted earnings per share for the first half came in at 19.7p, compared to 16p for the same period last year, and up on the 7.3p booked in the second half of 2009.
Earnings for the year of at least 30p look very achievable, putting the bank on a P/E of just 11. Its valuation is just below net asset value, too.
This seems a good price for a near-bombproof bank. Barclays came top of its peer group in the recent European banking stress tests, boasts a Core Tier 1 ratio of 10%, and still hasn't required a penny of Government money.
There's even a modest yield on offer, with the second-quarter dividend of 1p making 2p for 2010 so far. Lloyds Banking Group (LSE: LLOY) and Royal Bank of Scotland (LSE: RBS) shareholders can only look on in envy.
Income up, but so are costs
It's true that like Lloyds' figures yesterday, Barclays' results have been flattered by big reductions in impairments and credit market losses.
Total impairment charges declined 32% on this time last year to £3.1 billion, which boosted profits accordingly. In fact, net profit -- at £2.9 billion compared to £2.3 billion for the first half of 2009 -- might have declined year-on-year without the lift from impairments.
This is all the more curious if you consider group net income for the six months rose substantially -- to £13.5 billion, from £10.8 billion. But operating expenses have soared, too -- staff costs are up by £1 billion to £5.8 billion and administrative expenses by half as much again to £3.3 billion.
What investment banking arm Barclay Capital gives with one hand, it also take-eth away, it seems -- the big increase in salary and benefits costs can surely be laid at its door, with staff numbers at BarCap having increased by 2,300 to 25,000.
Waiting to go off?
Indeed, the bomb that could yet disrupt bombproof Barclays would be a shock failure at Barclays Capital. Following the takeover of certain Lehman Brothers operations at the height of the banking meltdown, it's more accurate to think of Barclays as an investment bank with a retail arm than to fret too much about your local high street branch.
Barclays Capital total income rose 30% to £7.9 billion. The £3.5 billion profit before tax subsequently generated dwarfs Barclays' profits from UK retail banking (£504 million) and Barclaycard (£307 million).
Yet it's the performance of BarCap that's making the City natives restless.
Top-line income here actually fell 32% on the £10.5 billion generated in the first half of 2009. Total income only rose because of the negligible credit market losses in income posted this time, compared to the £3.5 billion loss seen last year.
Is there a good reason for the decline in income? Nobody expected the once-in-a-lifetime opportunities of early 2009 to last forever. Markets were dysfunctional, throwing up numerous opportunities, and key competitors had either been acquired by Barclays or gone bust. But the weakening performance in the second quarter of 2010 was unexpected.
Barclays Capital claims things have already picked up in July, as Euro-wobbles have receded. As always, the difficulty with a 'black box' like BarCap is investors can really only hope, wait and see.
At least those rising staff costs should ease if the whizz kids misplace their magic touch!
Retail
While retail banking no longer decides Barclays' commercial fate, it certainly has political consequences. And on that note there are some interesting tidbits in today's results.
Firstly, lending by Barclays to UK customers seems to have genuinely increased to some £114 billion. Average mortgage balances grew by 16% to £98.7 billion. This contrasts with the partially State-owned Lloyds, which yesterday blamed a decline in total lending on a lack of customer appetite.
Yet the price paid for growth can perhaps be seen in net interest margin. Whereas this rose for Lloyds to over 2%, it's declined at Barclays to 1.4%. Does this reflect the anti-competitive nature of Lloyds' massive operations, or simply a business decision by Barclays?
Big is beautiful
Barclays is now the poster child for integrated banking -- and many politicians would prefer to see 'casino' investment banking hived off away from High Street savings and loans.
Yet an unquestionable black spot in today's results is the £377 million loss before tax in Barclays Corporate division, due to property and construction writedowns in Spain.
That I've barely bothered mentioning this is testament to how Barclays' breadth means it can shrug off such a localised loss.
Cheerleaders for smaller, specialised banks should be careful what they wish for.
More from Owain Bennallack:
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