racking up record profits for 2006, UK banking group Barclays is
still feeling the effects of the UK’s tough credit environment, due
to continuing high levels of impairments and losses at its
Barclaycard unit. However, Barclays CEO John Varley is confidently
predicting that the UK consumer credit market is “beginning to

In its 2006 full-year results, Barclays group pre-tax profits
rose to £7.14 billion ($14 billion), an increase of 35 percent
compared to 2005, mainly due to strong performances at its
investment banking and fund management units, Barclays Capital and
Barclays Global Investors. Total income was £21.6 billion, a rise
of 25 percent. However, total group impairment charges for 2006
were £2.15 billion, compared to £1.5 billion a year ago.

The steep profit rise helped to counter rising bad debts at
Barclaycard, where pre-tax profit slumped to £382 million compared
to £640 million a year ago, and Barclays is said to be considering
the sale of its sub-prime credit card unit Monument for around £1
billion in order to boost Barclaycard’s financial strength.
Barclays has also begun moves to sell its retail finance unit
Clydesdale Financial Services, which also forms part of the wider
Barclaycard business.

Barclays said that the rise in impairment charges on loans and
advances was attributable mostly to the challenging credit
environment in UK unsecured retail lending, which was partly due to
the continued rise in the level of personal insolvencies, made up
of bankruptcies and greater numbers of people entering into
individual voluntary arrangements (IVAs).

However, Barclays and other major UK lenders have since cracked
down on the acceptance criteria for IVAs by demanding a greater
percentage of repayments, and have also tightened lending

Varley said: “In the second half of 2006, as a result of a number
of management actions, flows into delinquency decreased and arrears
balances declined across the UK cards and unsecured loans
portfolios. We therefore believe that we passed the worst in
Barclaycard UK impairment in the second half of 2006.”

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Barclaycard posted income growth of 8 percent driven by momentum in
Barclaycard International, but this was more than offset by rising
impairment charges and greater levels of investment in Barclaycard
US, formerly Juniper, which Barclays bought in December 2004. Since
then, Barclaycard US outstandings have grown from $1.4 billion to
$4 billion, and the number of cards in issue has increased from 1.1
million to 4.2 million. Barclays said that income grew 73 percent
in 2006, and the business is on track to become profitable in

Management restructuring

Varley also announced that the group is to undertake a management
restructuring. Barclays has created a new structure, Global Retail
and Commercial Banking, which brings together UK banking,
international retail and commercial banking, and Barclaycard.

In an interview with global corporate communication website Cantos,
Varley said: “Some 50 percent of our profits are now coming from
outside the UK. Because the needs of retail and commercial and card
customers around the world are converging, and becoming more
homogeneous, this is the right time for us to put those businesses
under a single point of strategic direction and control.”


Barclaycard: Pre-tax profit