READ ALL ABOUT IT

Barclays Sees a Loss of $2.7 Billion on Mortgages

According to November 15 Barclays released a statement saying they have lost 1.3 billion pounds on credit related securities in the U.S. sub prime market. Barclay’s is the U.K.’s third largest bank. The charges and losses were 500 million pounds just in the third quarter and 800 million pounds just in October. Citigroup, Merrill Lynch, and Morgan Stanley have also announced great losses in the form of $10.3 billion in the past month as well. It seems that most of the losses is directly linked to the housing mortgage market in the U.S.

Barclays is up 12 percent in London for the past week. They are hoping to reassure investors regarding the size of the losses in the U.S. and make it minimal compared to the rest of their business practices, especially in the U.K. In fact Mamoun Tazi announced that Barclays reported better numbers overall than was expected for the quarter and the rest of the year. They currently have a buy rating on the stock.

While Barclays has fallen .5 percent on the shares in London they are valued at 35.3 billion pounds. The stock has seen, of course, a decline this year. The decline in stock has been a 27 percent, which is a little higher than the 16 percent of the Bloomberg Europe Banks and Financial Services Index.

Credit default has fallen 10 points from 65 to 55. This means the contracts have declined according to the perceptions of credit quality improve. The points are not the only thing to concern the industry or Barclays. Fitch Ratings announced that bank’s debt rating needs to be cut. In other words this would leave the AA+ rating of Barclays. It would also leave them with the second highest of 10 possible investment ratings. The increase in risks and earnings volatility for Barclays Capital may be related to the rankings they currently have.

Barclays Capital also announced that the securities unit has seen an increase in net income and pretax profit through October. They have seen 1.9 billion pounds of pretax profit, which is actually an increase over last year.

While the losses of Barclays has been a gross of 1.7 billion pounds on sub prime loans and buyouts of loans they were offset by the gains of 200 million pounds in the third quarter and October related to the securities unit. The current share price for Barclays has declined as it is reflecting the idea of issuing new shares to raise capital. However, Simon Maughan believes that this issue of new shares is now unlikely with the earnings from the pretax profit. They are in a rights issue at the moment and will need to see a 2 pound increase.

Along with the conversation regarding Barclays it should be noted that there are certain triggers that may result in further decline of the shares and of course the mortgages. Barclays is taking a continued risk in the U.S. sub prime market with CDO’s and 2.6 billion mortgages held by EquiFirst unit.

< Back to index