Shares soar as Barclays raises buy-backs

Barclays' shares soared yesterday after the bank reported higher first- half profits and told investors it had pounds 200m more to spend on share buy- backs this year than it had previously thought. The group will buy in pounds 700m of shares this year rather than the pounds 500m it promised shareholders six months ago.

The shares reached a high of pounds 14.65, a gain of 137.5p, before closing at pounds 14.47, 119.5p up on the day. In line with other financial stocks, they have soared recently as the stock market has reappraised the prospects for banking profits in the current low-inflation environment.

Reported profits for the six months to June were flat at pounds 1.27bn, but before a one-off hit to the bank's leasing activities from a change in the rate of corporation tax there was an underlying 8 per cent increase. The figures were in line with expectations, as was a 17 per cent increase in the dividend to 13.5p.

Analysts were taken aback by the surge in the share price, which added almost 10 per cent to the value of the bank. It followed big jumps in the past week from HSBC and Loyds TSB after they reported better than expected first-half results.

Martin Taylor, chief executive, said the decision to increase the scale of this year's buy-backs reflected a stronger capital position than six months ago when he had made a prudent assessment of the bank's excess funds. Barclays has already bought back pounds 290m of shares, leaving pounds 410m still to come, and has returned pounds 1.75bn to shareholders over the past two years.

One of the features of the figures was a sharp improvement at BZW, the investment banking division where profits collapsed in the second half of last year. Although below the pounds 148m achieved in the first six months of 1996, the pounds 124m interim profit compared favourably with the pounds 42m in yesterday's second half.

Profits would have been almost as good as last year's first half were it not for a pounds 20m loss on equity derivatives trading in the run up to the Budget. Changes to the rules on dividend tax credits hit contracts which had been written on the basis of the previous rules.

Mr Taylor was upbeat about prospects for BZW, following an improvement in its return on capital from 8 to 12 per cent. Earlier this week, rival NatWest Markets reported a 2.4 per cent return on its equity.

He insisted there was more to go for at the equities, markets and investment banking operation, and set a target return of 20 per cent for the business. The division has been radically overhauled since chief executive Bill Harrison arrived from Robert Fleming last year, with all three of its main operations now under new leadership.

Elsewhere, personal and business banking both grew strongly. Personal banking benefited from consumer sector growth, especially in credit card and consumer finance areas.

Investment Column, page 23