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Barclays First Half Profit Falls, Regulatory Problems Rise

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On Friday, Barclays PLC (ADR) (NYSE:BCS) reported that in the first half of the year, its net profit plummeted 76 percent to $752 million. This came from an accounting charge on its debt and one-off costs for inappropriate sales of financial products to small businesses.

Without these, Barclays’ net profit in the first six months increased 9 percent, to £3.07 billion, as compared to the previous year’s £2.8 billion. The increase exceeded analysts’ estimates and it was assisted by better performances from Barclay’s retail and corporate banking areas.

However, the bank’s investment banking unit is still affected from the volatility of the European debt crisis. They’re not alone as Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS) have also seen declines in investment banking, but analysts have noted that  Barclays has done well in comparison, as it keeps its trading income, reported The New York Times.

The bank did see a £1 billion pretax profit in its investment banking unit for the three months ending June 30, a 2.5 percent rise from the previous year.

In addition to its investment banking unit reacting to the debt crisis, Barclays said it cut its debt exposure to southern European countries by 22 percent, to £5.6 billion, in the first half. The bank’s core Tier 1 ratio, which measures how it deals with financial shocks, dropped to 10.9 percent, while its return on equity, excluding the one-time costs, increased to 9.9 percent; this came in lower than its target to reach a 13 percent return of equity by 2013, according to The New York Times.

Also in the first half, affecting numbers, were the June settlements by Barclays PLC (NYSE:BCS) (LON:BARC) with British regulators for the “mis-selling” of interest rate swaps. The bank was joined by its local competitors, HSBC, Royal Bank of Scotland, and Lloyds Banking Group in agreeing to settlements.

Regulatory Problems

In addition to reporting earning numbers on Friday, Barclays PLC (NYSE:BCS) (LON:BARC) also said that the U.K. regulator, the Financial Services Authority, was investigating its current and former employees over fee disclosures from fundraising efforts in 2008; this included finance director Chris Lucas. At issue is the agreements with the Qatar Investment Authority and the Sumitomo Mitsui Banking Corporation of Japan, reported The New York Times.

The story goes like this. After Lehman Brothers’s 2008 implosion, Barclays went to Middle Eastern investors for £7.3 billion in new capital. Shareholders expressed worries their rights had not been considered, as the bank went to external sources for capital.

The bank said of the review, via a statement, “Barclays considers that it satisfied its disclosure obligations and confirms that it will cooperate fully with the F.S.A.’s investigation.”

All of this comes against the backdrop of the bank’s Libor scandal. In June, Barclays reached a $450 million settlement with American and British authorities, in response to manipulating the Libor. On Friday, the bank said it was dealing with numerous U.S. class action lawsuits from the Libor and the Euro interbank offered rate (Euribor). This began at the start of July.

Barclays’ chairman, Marcus Agius said, via a statement, “We are sorry for the issues that have emerged over recent weeks and recognize that we have disappointed our customers and shareholders.”

Agius will leave his position and said on a conference call that the bank will first select a new chairman, then it’s new chief executive.

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