Profits at Barclays slide by a third

British bank Barclays Plc reported a 33 percent drop in first-half profits after taking a 2 billion pound writedown on the value of risky assets, and said challenging market conditions are likely to last through 2009.

Britain's third biggest bank said on Thursday its pretax profit in the six months to the end of June was 2.75 billion pounds (5.4 billion), down from 4.1 billion a year before but ahead of an average analyst forecast of 2.63 billion.

Barclays shares were flat at 369 pence by 0807 GMT, in line with a weaker broader share market.

"There may be some questioning over the sustainability of the strong underlying BarCap performance, coupled with continued questioning over the prudence of BarCap writedowns," said James Hutson, analyst at Keefe, Bruyette & Woods. "Nevertheless, the good underlying performance should be reasonably well received."

Half-year profits at Barclays Capital fell 68 percent to 524 million pounds, as it absorbed a 1.98 billion pound writedown on its credit market exposures, net of 852 million on the debt it carries.

Bob Diamond, head of BarCap, said that reflected resilience in tough markets, but tough conditions were set to last.

"Our operating hypothesis is that we're not going back to markets like 2005 and 2006, we're going to be in more challenging environments for the balance of 2008 and really throughout 2009," he told reporters on a conference call.

BarCap had estimated a 1 billion pound net writedown for the first quarter and wrote down a net 1.6 billion pounds last year.

The bank's total charge for bad debts and other credit provisions was 2.45 billion pounds in the half, more than double 959 million a year before.

It has been criticised for not marking down its assets as much as most rivals, but the bank said it had taken a "more conservative" stance on its monoline insurer exposure and the rest of the writedown reflected adverse market movements.

Against a difficult backdrop, Varley said core tier 1 capital would keep "a substantial margin" above its long-term target of 5.25 percent. The ratio was 5 percent at the end of June – one of the lowest in Europe – but rose to 6.3 percent after a 4.5 billion pound fundraising completed last month. Analysts expect the ratio to he held near 5.7 percent.

Barclays aims to use half the cash it raised to rebuild capital and half to pursue growth, and a tough backdrop created "significant opportunities" to take advantage, Varley said.

Barclays said it grabbed a 26 percent net share of the UK mortgage market in the first half, more than four times its traditional 6 percent share.

UK retail banking profits rose 7 percent to 690 million, while profits in its credit card arm Barclaycard rose 30 percent to 388 million. UK retail bad debts rose 4 percent to 288 million pounds and Barclaycard's impairments rose 10 percent to 477 million.

Profits at asset management arm Barclays Global Investors dropped by a third to 265 milllion pounds, as income growth of 5 percent and strong cost control were countered by a 196 million charge where it provided liquidity support to money market funds where markets had dried up.