Barclays weathers subprime storm

The US subprime crisis is a nightmare for many international financial institutions. But for Barclays, the UK's third largest bank, it also represents a good opportunity for an industry reshuffle.

The bank was the first of the big UK lenders to report its audited annual results after the crisis hit global financial markets.

Barclays' revenue jumped 7 percent to 23 billion pounds last year, making 2007 its best 12 months of the past 320 years.

Despite a 1.6 billion pound writedown, Barclays' total dividend increased 10 percent, with the return on equity rising 20 percent.

China Daily reporter Hu Yuanyuan spoke to Robert Diamond, president of Barclays PLC, about the bank's strategy to deal with the subprime crisis.

Q: Barclays' subprime loss was comparatively lower than other financial giants. How did the bank manage that?

A: That is mainly due to our strong risk management and business diversification. When market turmoil first bites, we work closely with our clients and make quick moves on their behalf and also on our own behalf.

Meanwhile, we have a diversified business portfolio in terms of products and geographical locations. So, even though our credit business plummeted by 50 percent last year, our interest rate products saw a jump of 60 percent. And our foreign and exchange business as well as equity and commodity business are up 40 percent and 25 percent respectively. And our business in Asia and Africa also doubled last year.

Q: Do you think the worst is over? Or are there still uncertainties in the market?

A: The first six months of this year will be extremely difficult and challenging because of too much uncertainty in the market. These factors include the exposure and earnings of big banks, more clarity with monoline insurers and the future of the US economy. I believe there are just short and shallow corrections rather than a long-term correction or recession in the US economy, thanks to the Federal Reserve's very bold and early action in cutting interest rates and a huge fiscal stimulus package in America. So, the situation in the second half of 2008 will be much better. But we are still looking closely at labor numbers in the US.

Q: After withdrawing from a takeover bid for ABN Amro last October, do you have any new M&A targets as the subprime crisis offers more opportunities?

A: I do believe 2008 will see more merger and acquisition opportunities at better prices. And we are still watching for opportunities in retail and commercial banking.

In fact, we have just agreed to buy Russia's Expobank, which has 32 branches principally in Moscow and St Petersburg, for $745 million. And Expobank's relationships and infrastructure create the ideal platform for us to become one of the leading retail and commercial banks in Russia.

Q: How's your China business going? How much would you like to add to China's market this year?

A: Our business in China has maintained an annual compound growth rate of 40 percent in the past five years and we expect to see a further increase of no less than 15 to 25 percent for this year.

We are sure to increase our investment in China's market this year, mainly in the form of capital and staff. But we can't reveal any figures.

Q: Barclays seems more interested in China's wholesale and investment banking sector than in retail and commercial banking. Does the bank plan to strengthen its business in these sectors down the track?

A: Yes, our business focus in China is on the wholesale and investment banking sector, through the management of our subsidiaries Barclays Capital and Barclays Global Investors.

Under China's current regulatory commission, we cannot take a stake of over 20 percent in a Chinese bank. However, we would like to be an active investor rather than a minor stakeholder. So, we are still looking for more appropriate opportunities in China's retail and commercial banking sector.

Q: Barclays signed a five-year strategic alliance on commodities with China Development Bank (CDB) in October. How's that business been going in the past six months? Is there a plan to expand cooperation into other areas?

A: We met the top management of CDB in late February and decided to strengthen our cooperation in developing commodities, business in Africa, asset management, training and cooperation under the framework of Basel II.

We are going to see a commodity transaction with CDB very soon.

Q: After CDB paid 2.2 billion euros for a 3.1 percent stake in Barclays to become one of its largest shareholders, market sources said Barclays wanted a stake in CDB. Is that true?

A: We have a very sound strategic cooperation with CDB, but we don't have any plan to buy a stake in the bank. As far as I know, the shares in CDB are not tradable.

We sold the stake to CDB in July because we needed capital to acquire ABN Amro last year. Though the takeover bid eventually failed, it will not influence our cooperation. We also welcome the participation of the sovereign wealth fund.

Q: How can Barclays balance its investment in developed and emerging markets?

A: Well, that is our real challenge. We would like to strengthen our investment in Asia, Africa, the Middle East and Russia, but picking up market share in the US is our priority for 2008. We're more interested in the US investment banking sector than the retail banking sector, as the latter, a consolidated market dominated by five to six big banks, is not likely to see high growth.

(China Daily 03/13/2008 page15)