Press 27/11/07

Extracts below. Click on links for full articles.


FT - Chris Hughes

http://www.ft.com/cms/s/0/10771374-9d2a-11dc-af03-0000779fd2ac.html

John Varley needs the bank's non-investment banking business to step up a gear if he is to address Barclays' embarrassingly low stock market valuation.

Even after bouncing off its recent low, the stock is priced at a 35% discount to the UK stock market when valued on the P/E ratio for 2008 according to forecasts by Credit Suisse, Barclays' company broker. That is at the lower end of its historic trading range.

To be fair, Barclays is certainly making progress in its businesses outside Barcap. For starters, retail customers appear to be coping well with higher interest rates. Problem loans are falling in Barclaycard and the UK retail bank, and are growing at a slower pace in the business bank. Meanwhile, mortgage bad debts are "negligible".

Moreover, income growth is strong in Barclays' international banking and wealth management businesses. The same goes for the BGI fund management unit, even though its revenues are largely dollar denominated. And Barclaycard's US business is now expected to be profitable this year, when it was previously targeting only break-even. The only fly in the ointment overseas is the impact that the depreciating rand has had on the contribution from Absa...

The snag is that these positive points do not add up to a convincing antidote to the uncertainty surrounding Barcap.

But the good news for Barclays shareholders is that if this is as bad as it gets, then some expect the shares will rally before long.

FT - Maggie Urry

http://www.ft.com/cms/s/0/39c7b1e2-9d53-11dc-af03-0000779fd2ac.html

Chris Lucas, finance director, also revealed Barclays expected to make a gain of about £400m from buying back shares to neutralise the effect of issuing shares to China Development Bank and Temasek...The shares were issued at a price of 720p. Barclays has bought back about 280m at an average price of 603p.



Reuters - Steve Slater

http://uk.reuters.com/article/businessNews/idUKWLB368620071127?feedType=nl&feedName=ukdailyinvestor&sp=true

Barclays is on track to meet analysts' expectations for earnings growth of 4 percent this year and said diversification had provided some shield from recent turbulence in capital markets. ...it should deliver a 2007 pretax profit of 7.1 billion pounds, up from underlying profit of 6.8 billion in 2006.

"The market should be relieved that there were no further BarCap risks announced and trading elsewhere is in line with expectations," said James Hutson, analyst at Keefe, Bruyette & Woods.

Barclays said its liquidity remained strong and it continued to see good inflows of deposits. Its performance in the first nine months of this year was underpinned by "good" profit growth in retail after the impact of refunds on bank charges and at asset manager Barclays Global Investors. It reported "strong" profit growth at its Barclaycard credit card unit excluding one-off items, "very strong" income growth in its international businesses outside South Africa, and "excellent" profit growth at Barclays Wealth. Bad debts at Barclaycard and for unsecured lending continued to improve, it said. The bank had already said its Barclays Capital investment bank unit would take a 1.3 billion pound writedown for losses on securities linked to the U.S. subprime housing crisis, but the unit's profits for the 10 months to the end of October were still up on the year before at 1.9 billion pounds. Barclays said its UK Banking business should cut the ratio of costs to income to 50 percent this year, excluding the impact of refunds on charges, from 52 percent in 2006. UK business banking profits had also shown good growth in income and profits, it said. Depreciation in the South African rand would leave Absa's profit contribution down on the year in sterling terms, despite strong growth in local currency terms. BGI's profit growth in sterling would also be dampened by the weak U.S. dollar. Earnings should come in near the 68.8 pence per share currently forecast by analysts, up from underlying EPS of 66.8p a year ago, it said.

Citywire - Charlie Parker

http://www.citywire.co.uk/News/NewsArticle.aspx?VersionID=98976&re=2119&ea=91427&XDU=11bc4b75-04dd-4a14-8074-63580af87edd&XDS=O&XDNG=True&XDKL=0&XDURL=http%3a%2f%2fwww.citywire.co.uk%2fNews%2fNewsArticle.aspx%3fVersionID%3d98976%26re%3d2119%26ea%3d91427

Brokers Collins Stewart reacted by rating Barclays a buy and putting a price target of 893p for the Bank. Analyst Alex Potter said: 'UK retail and commercial businesses both saw strong income growth with the tailwind of higher rates clearly helping' Potter also said that the downgrade due to accommodate the writedowns at Barclays Capital were really very modest. KBW was more measured in its praise giving the stock a 'market perform' rating with a price target of 660p.

Telegraph - Philip Aldrick

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/11/28/cnbarc128.xml

Finance director Chris Lucas said 83pc of the buyback was complete and there would be a small credit in the annual figures.
[My note: The "credit in the annual figures" probably refers to the surplus of the break fees re ABN-Amro over costs and not as a result of the buyback.]

Times - Patrick Hosking and Miles Costello

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2957499.ece

Barclays declined to elaborate on the latest trading at BarCap, except to say that its confident group-wide forecast was based on the latest prices of securities held on BarCap’s books.

Chris Lucas, the finance director of Barclays, cautioned that recent performance at the retail bank had been “a mixed story”. Amid increasing indications that an economic downturn is looming, he said: “Mortgages, savings and current accounts are performing well in line with the first half. Unsecured lending and payment protection insurance – both of these have been performing less strongly, as a result of the stance we have taken to risk.” Mr Lucas said that revenues at Barclays’ retail bank most probably would grow at a slower rate in the second half than in the first. Revenues in the first six months of the year grew by 5 per cent, and profits increased by 9 per cent.
He said: “Like all banks, we are not immune to changes in market conditions. However, taking into account everything that we know today, we still expect our earnings to be broadly in line with consensus.”

Although analysts said that a 4 per cent profit increase would be a very creditable performance in the present market, it still would bring an end to the galloping growth of the past four years.
It also raises doubts over whether Barclays will be able to lift the dividend as fast as recently. Last year it was boosted by 17 per cent. John Varley, the chief executive, said two weeks ago that there was no change to the bank’s progressive dividend policy, but, with headline earnings per share likely to fall fractionally this year, Barclays is predicted to leave the total dividend unchanged at 34.3p. Even then, the yield is 6.5 per cent.

The bank revealed that it had spent £1.7 billion so far on its share buyback, paying an average price of 603p over the past few months.

Sandy Chen, the Panmure Gordon analyst, raised fresh questions about a further £10.4 billion of exposure at BarCap to structured credit markets. He said that Barclays could suffer hits of £5 billion to its structured asset-backed securities portfolio and £5.4 billion to its sub-prime mortgage book.

Keefe, Bruyette & Woods analysts said: “The market should be relieved that there were no further BarCap risks announced and trading elsewhere is in line with expectations.”
Alex Potter, the Collins Stewart banks analyst, said: “Doubts around this business are likely to persist until the finals in late February, but we take comfort from management’s stance on BarCap’s prospects.”

Barclays said that its retail banking business in the UK would shake off customer settlements on overdraft fees to deliver “good growth” in pretax profits over the full year to the end of November.

The bank was on course to improve its cost-to-income ratio by 2 per cent this year, Barclays said.

Bad-debt charges at Barclaycard continue to improve and the division’s American arm is set to move into profits this year, it said.

Independent - Sean Farrell

http://news.independent.co.uk/business/news/article3201607.ece

A fund manager said Barclays' statement "gives a degree of comfort" but said the UK's banks needed debt markets to reopen to avert a big hit to earnings and the economies that feed their growth.

Chris Lucas, the bank's finance director, told analysts 2008 would bring "a greater range of uncertainty".


Citywire - Douglas Bence

http://www.citywire.co.uk/News/NewsArticle.aspx?VersionID=98989&re=2124&ea=91427

While uncertainties remain about the current performance of Barclays Capital, analysts are taking the view that Britain's number three bank will lead the eventual recovery in the sector.

Collins Stewart analyst Alex Potter believes 'Barclays will be a key recovery play in the UK banks.'

But there were no details in the trading of Barclays Capital trading this month and none were revealed in an hour long conference call with analysts.

the group still expects it to grow by around 15-20% over the medium term.

'Bar Cap is a surprisingly diverse business model and appears to have stuck more resolutely than some peers to an "originate and distribute" model,' added Potter.
'Doubts around this business are likely to persist until the finals in late February, but we take comfort from management's stance on its prospects.'

The bank continues to take a cautious approach to personal loans, but these are likely to increase in the coming months, but on those certain areas where the risks of default are low.

Guardian - Graeme Wearden

http://www.guardian.co.uk/business/2007/nov/27/barclaysbusiness.banking

On the retail side, it has been hit by the cost of repaying customers who had been penalised for exceeding their overdraft limit.
Barclays paid out £87m in settlements in the first half of the year. Like other banks, it suspended repayments at the end of July until a test case is held in 2008 to determine if such charges are illegal.

Alex Potter of Collins Stewart said doubts over Barclays Capital were likely to linger until the full results for 2007 are published in February, but said he was encouraged that the company was sticking with its target of 15-20% annual growth for the unit.

Barrons: 19/11/07

http://online.barrons.com/article/SB119525655251896301.html?mod=googlenews_barrons

Extracts:

There are a few areas that could still see hits. One is the bank's £10 billion exposure to the commercial-mortgage-backed-securities market, about 40% of which is in the U.S. Barclays hasn't yet taken any write-offs in this area, and there is anecdotal evidence the commercial-property market is weakening. A lot of the bank's commercial-mortgage-backed portfolio dates to 2005 and 2006, and even earlier. So write-downs, if any, may be lower than those of participants who got into the market this year.
In the leveraged-finance arena, Barclays has £7.3 billion of unsold underwriting positions. Unlike its U.S. peers, BarCap doesn't mark to market these loans but uses its own analysis. It has written down £190 million so far.
One worry will be the slowdown in revenue from credit products, which were responsible for nearly £1.2 billion in the first six months of this year. But BarCap's target of 15% to 20% revenue growth in the medium term means that it is bullish on other businesses like rates, foreign exchange, equities, commodities and currencies. One key will be the extent to which it relies on its relationships in China, since China Development Bank is an investor in Barclays.
The bank is due to come out with its detailed trading statement later this year. As long as its capital-adequacy ratios remain intact, Barclays may be up for a re-rating.

Press 16/11/07

Extracts from the newspapers on 16/11/07:


Financial Times - The Lex Column

Barclays appears to have got off lightly relative to its US investment banking peers. But they all share two big risks. First the threat that a prolonged US housing slump moves the crisis from subprime loans to other mortgages. The second is the effect of a global economic slowdown on other investment banking activities such as equities, commodities and leveraged finance. For now, these businesses are still fizzing at Barclays. That its shares are trading on a forward earnings multiple of only 7.5 times suggests that investors are less sure this effervescence will last much longer.

Financial Times - Peter Thal Larsen

The immediate question posed by Barclays' announcement is its exposure to a further downturn
in the credit markets.

Despite the write downs, Barclays Capital's exposures to CDOs is £5bn. Its loan and trading book is valued at £5.4bn, of which £2.6bn is in Equifirst, the US subprime mortgage originator that Barclays bought earlier this year. The bank also still has £7.3bn in unsold private equity loans.

[Bob Diamond] sees the downturn as an opportunity to expand Barclays Capital's operations, particularly in the US, where it can take advantage of the distress of some of its rivals.

More fundamentally, he believes the business model of acting as an intermediary in the capital markets will prevail.

"We have a serious situation around subprime as an asset class. There were extremes in origination," he said. "But the financial markets live on innovation. I wouldn't bet that the originate and distribute model is anything other than enforced by this."

The Times - John Harding

The troubles at Barclays Capital, the investment bank, have been exaggerated by a market of skittish investors and calculating short-sellers. BarCap has reported improved profits in the first ten months of the year and reduced its exposure to risky credit products and structured investment vehicles (SIVs).
The losses, nonetheless, are large and a long way from over. The statement then set out three baskets of potential future losses:
1) Superior senior exposure worth about £5 billion. Roughly two-thirds of this, Barclays said, is secured by hedges or other instruments. So, £1.75 billion there is still at risk.
2) US sub-prime mortgages worth £5.4 billion. Just under £3 billion of that is in mortgages originated by Barclays and considered relatively safe. So, £2.5 billion there is in doubt.
3) Leveraged finance worth £7.3 billion. Judging from the relatively modest sums in writedowns in this area, the sums at risk in the future run “only” into the hundreds of millions of pounds.
In sum, Barclays has written down £1.7 billion in the past four months and there is more than £4 billion at some serious risk in the months ahead. The statement should have read: “We have had a difficult summer, an awful October and there may well be more bad news to come. Overall, though, the situation is still a lot better than the Barclays bears expected.”

Independent - Sean Farrell

Mr Varley said: "We do feel confident about that [Barclays Capital's growth]. It is not unusual in an investment banking business to have some areas that are hot and some that are cold. The sub-prime area, which has not historically been a big area for us, is cold at the moment. We have other areas that are hot."
"Hot" areas such as currencies, commodities and equity derivatives helped Barclays Capital achieve £1.9bn of pre-tax profit for the first 10 months of the year, ahead of the record figure for the year-earlier period, Mr Varley said.
Barclays Capital has been the main driver of Barclays' profit in recent years as the debt-focused business tapped into the credit boom. Mr Varley defended Barclays Capital against charges that it had expanded into risky areas such as collateralised debt obligations (CDOs) and structured investment vehicles (SIVs).
"Is the business model working well? Is the risk management working well? Is there diversification by geography and asset class? The answer is in the numbers," he said.

There has been concern about Barclays' liquidity and capital position during the summer because of its exposure to SIVs that it set up for clients. The bank said yesterday it had added deposits and gained increased credit lines from counterparties during the credit crunch.

Telegraph - Philip Aldrick

The trading update did provide the detail on Barclays' position investors have been demanding, but it could not restore confidence. Barclays still has £10.4bn of "toxic" collateralised debt obligation (CDO) and sub-prime exposure on its books.
No matter how secure chief executive John Varley and Barclays Capital boss Bob Diamond claim that is, fears of further write-downs will persist.
Jonathan Pierce, an analyst at Credit Suisse, summed up the reaction, saying: "We applaud the disclosure but believe there could be worse to come for the bank sector as a whole." Intriguingly, he noted that, far from the "conservative" approach to the numbers that Mr Varley described, Barclays' write-downs were only in line with other European banks and far less "conservative" than its US peers.
In the case of CDOs, he calculated that Barclays' write-offs equated to 18pc of its exposure - "quite low versus the other investment banks that have disclosed information so far". He added: "Applying the write-down seen at Merrill Lynch and Morgan Stanley… would imply a total write-off of nearer £3.3bn."
Barclays stressed its remaining sub-prime exposure is high quality. Just £2.5bn of its CDOs is directly sub-prime, with the rest in other collateral. Barclays also originated £5bn of its remaining sub-prime exposure itself with a relatively secure average loan-to-value ratio of 82pc.
Analysts also welcomed the hair-shirt approach Barclays took to some of its more extreme sub-prime collateral, which was written off completely.
In Mr Diamond's opinion, what's left should "not be a source of worry but treated like normal times". As he said, banking is "the business of risk".

Mr Diamond and Mr Varley have put their reputations on the line by arguing that the write-downs are conservative, which should provide some comfort.
But Barclays still has considerable exposure if things get worse.

Telegraph - Tom Stevenson

More important is the nagging doubt that the write-off is not conservative enough. At around 12pc of Barclays' exposure, it is in line with European peers but a fraction of the 30pc or so that the big American banks like Merrill Lynch and Morgan Stanley have owned up to.
The worry is that there might be more to come. Of the £1.3bn hit, £500m came in the third quarter from July to September while £800m was in October alone. Barclays admits that it still has an exposure to sub-prime toxicity of around £10bn. Conditions have not improved in the first half of November so no-one really knows when it's all going to end.
But sub-prime aside, Barclays Capital is in pretty good shape. The £1.9bn it generated in the first 10 months means it won't be too far off last year's full year return unless things go completely pear shaped over the next six weeks. Barclays says October was the best fourth quarter month ever in the rest of its business.
There is also a price for everything and Barclays, and indeed the whole financial sector, looks like it's not far from it. There's another investment rule of thumb which says that when a company's dividend yield is greater than the multiple of earnings on which its shares trade, you should buy it. Barclays yields 7.1pc and you can buy its shares for 7.2 times earnings. How much blood do we need?

Telegraph - Philip Aldrick

Details of its position prompted credit rating agency Fitch to lower its outlook for Barclays to negative from stable, indicating a rating downgrade is likely in the next one to two years. It said: "The revision reflects our concerns that the continuing expansion of Barclays Capital might expose the group to greater risks and earnings volatility."

Mr Varley reiterated that "through time" BarCap and Barclays Global Investors will deliver growth of 15pc-25pc, adding: "BarCap is built to last." Exane BNP Paribas forecasts a 6pc fall in BarCap profits in 2008.

Guardian - Graeme Wearden

Bob Diamond, the president of Barclays Capital, warned this morning that the group had an ongoing exposure to the sub-prime market, in which loans were made to people with poor credit histories and who now cannot repay their debts.
"We expect sub-prime to be in workout conditions for at least another year or two," Diamond explained.

Barclays Capital also wrote off £190m from its £7.3bn-worth of unsold underwritten leveraged loans. Diamond said that demand for leveraged loans had dropped in the current market climate, but was hopeful that the market would pick up in early 2008.

"Against the total of £18.4bn of exposures to US sub-prime and leveraged finance the company has outlined today, this is a 7% write-off level, well ahead of investment banking peers in the range of 3-5%," he said.
Potter also pointed out that Barclays Capital's profits had slowed considerably in the second half of this year.

"Profits for the 10 months to the end of October of £1.9bn, although ahead of last year, is a material slowdown after the £1.69bn posted in the first half," he said.

Times - Peter Hosking

the positive mood evaporated on closer reading of its trading statement and because of souring sentiment over banks generally.

There was also concern about the steepness of the slide in loan quality in recent weeks – £1 billion of the write-offs came in October alone, compared with a £700 million deterioration over the previous three months.

In some cases, securities secured on US sub-prime mortgages had been written down to zero, he said. Second-lien mortgages - home loans where Barclays has only second claim on the collateral – had also been written off.

Collateralised debt obligations – the investment vehicles in which many of the sub-prime mortgages are contained – have been hard to value because there has been little or no trading of them to set a market price. Even after the writedowns, Barclays still has total exposure to US sub-prime loans of about £10.8 billion.

Barclays also gave details of its exposure to warehoused leveraged buyout debt – loans given or promised to company buyers but no longer wanted by syndicated buyers because of the credit crunch.
Barclays said it now had £7.3 billion of such debt, down from £9 billion in September, and that it had written down the loans’ value by £190 million. After taking account of £130 million of fees, the loss was likely to be only £60 million.
Jonathan Pierce, a Credit Suisse analyst, applauded the level of disclosure, but questioned whether the sub-prime writedowns were enough. At 12 per cent of the exposure, net of tax, they were in line with other European banks, but not as conservative as Merrill Lynch and Morgan Stanley, which have written down about 30 per cent, he said.

Fitch, the rating agency, downgraded Barclays’ outlook score from “stable” to “negative”. It said expansion of BarCap might expose the bank to greater risks.

Associated Press - Maldon Read

Banks appear to be erring on the side of caution, said S&P bank analyst Scott Sprinzen. "But one thing to keep in mind, under accounting rules, you can't deliberately build in a downside cushion."
Barclays Capital chief executive Bob Diamond said there was no risk of further write-downs of Barclays' residential mortgage-backed CDOs, but declined to say if it would make additional write-downs from exposure in other parts of its business.
Banks can hedge, but not all techniques are successful. A recent estimate of the S&P 500 financial services sector showed a net drop in third-quarter profits of 33 percent.
Banks are generally not selling their distressed securities to cut losses, because they're betting that eventually, demand will return and the portfolios will rebound, which may lead to a windfall.
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In a separate blog, I am writing a series of articles regarding investments in general. These are meant more to help novice investors avoid commonly made costly mistakes rather than become the next Warren Buffett. Presently, it is still work-in-progress but I hope to add many more articles when I have time. Go to http://mythoughts-mohan.blogspot.com/ if you are interested,

Bought @ 489.25p

Bought at 489.25p because, at this price, even the historic yield is over 6%.

The price is so low because of uncertainty about the amount that Barclays will have to write off for its exposure to the sub prime market fall out. However, I think the market's fears are excessive because:

1. Barclays continues to buy back its own shares
2. The directors have bought heavily recently
3. Barclays has not issued a profits warning.

Barclays has survived several major crises in its history and it is likely to survive this crisis, even if it is one. Moody's and S&P continue to give it AA1 and AA ratings respectively and both consider the outlook as stable. John Varley and Bob Diamond have indicated even very recently that Barclays continues to trade profitably.

The yield is higher than that which can be obtained from most banks and building societies. With market and customer confidence and top jobs at risk, I do not think that Barclays will cut the dividend. If there is a requirement for large provisions, this will probably be spread over a number of years - Barclays will have this leeway by marking to model rather than market.Even if the dividend is only maintained for the next couple of years, it will probably resume growth after that.

Positives

One of the few banks that can serve big business in the UK. (Bigger UK competitors are HSBC and RBS.) A toll keeper.

S&P AA rating. Moody’s AA1 rating. Both with stable outlook.

9th largest bank in world by market capitalisation.

Scope for improving profits through cost cutting and IT efficiency improvement.

Seems to be more prudent in lending in the current house price inflation and high borrowing climate.

Innovative, e.g. Barclays Global Investors has become the biggest index trackers in the world.

Good growth in past few year likely to continue into the future. Quotes from John Varley's Oct 07 presentation:
1 We have consistently talked about our expectation that, through time, both BarCap and BGI will be capable of generating compound profit growth of between 15% and 20%. Nothing that’s happened over the course of the last months causes us to change that growth outlook for the future.
2 The privatisation of welfare provision; wealth generation and wealth transfer; explosive growth in demand for financial products in emerging markets; significant growth in the utilisation of credit cards for payments and borrowing; the securitisation of financing; the derivativisation of risk management; and the demands placed on the capital markets to finance infrastructure development throughout the developed and developing world.
3 We are investing heavily in our retail and commercial banking businesses in Western Europe – Italy, Spain and Portugal – and in Emerging Markets – India, Egypt, and the United Arab Emirates. Some 180 branches were opened outside the United Kingdom during the first half of this year (mostly in Emerging Markets), and we expect that this number will have risen to over 350 by year end. We are confident of achieving strong growth rates – with our Western Europe business growing at an emerging market rate during the first half of this year, with profit up 17% and, in the Emerging Markets business itself, by 25%.

Good and growing yield
1 Barclays has not cut its dividend since 1992 (that’s as far back as Sharescope shows) and has increased its dividend every year since 1993 (dividend history in pence from 1993 to 2006 = 3.79, 5.25, 6.50, 7.88, 9.25, 10.75, 12.50, 14.5, 16.63, 18.38, 20.50, 24.00, 26.60, 31.00).

Buying back own shares at big “profit” in Sep / Nov 07 compared to sales of its shares in Aug 07.
1 Sold £2.5bn worth of shares @ £7.20 each to China Development Bank and Tamasek Holdings in August 2007.
2 Buying back those shares from the market at prices well below that thus enhancing shareholder value.

Directors bought shares at higher market prices recently.
02-Nov-07 Frederik Seegers 551.00p 72,000 £396,720
22-Oct-07 Sir Nigel Rudd 584.50p 16,500 £96,442
28-Sep-07 Frederik Seegers 594.00p 50,000 £297,000
03-Aug-07 Leigh Clifford 689.50p 6,000 £41,370
02-Aug-07 John S Varley 682.00p 70,000 £477,400
02-Aug-07 Frederik Seegers 680.00p 140,000 £952,000
02-Aug-07 Sir Nigel Rudd 679.50p 15,000 £101,925
02-Aug-07 Chris Lucas 682.00p 35,000 £238,700
02-Aug-07 Andrew Likierman 685.00p 1,000 £6,850
02-Aug-07 Gary Hoffman 680.00p 70,000 £476,000
02-Aug-07 Robert E Diamond Jr 674.00p 140,000 £943,599
02-Aug-07 Fulvio Conti 682.00p 6,000 £40,920

Emphasis on risk management, including diversification of income sources and markets. Quotes from John Varley's Oct 07 presentation:
1 Over the course of the last 18 months, three in every four new Barclaycards issued to customers have been issued to customers outside the United Kingdom
2 Self evidently, how well we manage risk dictates at what pace (and sometimes whether) we grow.
3 Emerging markets carry their own risks. But we understand these risks well and we have built a team under Frits which has very significant experience in developing these businesses.
4 There are many in this room who will look to commercial banking businesses in the United Kingdom over the course of the last 30 years as the sources of cyclical value destruction. But in Barclays Business Banking, we have a good example of where the drum beat has to be one of strong risk adjusted growth. There has been a massive progress in the quality of risk management in this area of our business. What I want here, as elsewhere, is safe growth. And that means being prepared to take a point of view. Property and construction as a percentage of our corporate loan book in the United Kingdom represents 14%. We have studiously avoided risk concentration here.
5 We have spread our business risk by consciously striving to generate a more diverse income base. As a result, the proportion of non-interest income has risen to 60% of our total income up from 45% in 2003

Negatives

Slowing revenue growth and increasing costs.

Profits in the next few years likely to suffer due to slowing housing market, reduction in trading in derivatives, fewer opportunities for creating new products, etc.

Fierce competition in personal banking and lending from building societies and smaller banks like Abbey National.

Vulnerable to recessions. But about 49% of costs comprise performance related (36%), new investments (9%) and contractor costs (4%) that can be reduced when income reduces.

Risk of major acquisition or other major decision going wrong.

Increasing contribution of Barcap to profits but higher risk.

Enron litigation – how much will the unprovided charge be?

Integration of Woolwich was badly managed.

Unknowns

Is Barclays being cautious in mortgage lending or are competitors taking market share that Barclays will not be able to recapture?

Are costs going out of control or are they increasing because of investment to expand?

Is the strong growth in Barcap & BGI sustainable?

Complex accounts.

Barcap exposures to derivatives, etc.