Despite the writedown of $3.1 billion on the
value of uncertain assets, Barclays has been able to report
relatively healthy figures in line with the expectations of
analysts, despite the global financial woes currently shaking up
the markets.
Barclays delivered a resilient performance in
2007, with profits broadly in line with the record prior year
results,” said group chief executive John Varley. “The strength of
our diversified businesses gives us confidence for the period
“Barclays’ financial performance in 2007
demonstrated the benefit of the successful execution of our
strategic priorities in recent years,” commented Chris Lucas, group
finance director.
This continued buoyancy in the face of
challenging markets can be seen in the robust growth demonstrated
by its Barclaycard arm, which saw an 18 percent increase in profit
before tax from the previous year. This was driven by an improved
UK impairment as the bank realigned its domestic business to avoid
exposure to lower credit quality. To this end, Barclaycard also
jettisoned a large part of its Monument card portfolio in early
2007 – a subprime business that it bought in 2002 from US-based
financial group Providian.
Despite struggling in 2006, Barclaycard has
managed to turn its business around in the UK market through this
increasingly stringent approach to lending, greatly reducing its
level of arrears balances and delinquencies. Barclaycard US
continued to make good progress, making a profit for the first

Customers up but balance down

While the number of domestic customers actually rose by 300,000 to
pass the 10 million mark, the average outstanding balance figures
dropped by £1 billion ($1.95 billion) from the previous year to
£8.4 billion. Similarly, average extended credit balances dropped
from £8 billion in 2006 to £6.9 billion at year end 2007.
Barclaycard also updated its impairment methodologies to adopt a
homogenous approach in anticipation of the EU’s Basel II
legislation. As a result of these measures, impairment charges
improved by 21 percent, reflecting a shift towards a more
discerning customer recruitment process, better client management
and enhanced collections.

Overall, Barclaycard’s 2007 income dropped 1
percent from the previous year, reflecting the increasingly
cautious approach to lending in the UK and the £27 million loss
from the sale of part of the Monument card portfolio. This decline
in UK revenue was balanced by strong growth from Barclaycard
International. This segment of the business posted an impressive
profit before tax of £77 million against a loss before tax of £36
million in the previous year
Strong organic growth of 32 percent in
international average extended credit card balances and a 26
percent rise in average secured consumer lending balances were
slightly offset by a 14 percent drop in UK average extended credit
card balances. Overall, this boosted the net income interest of
Barclaycard by 1 percent for 2007. Total assets for the company
increased by 10 percent over the past 12 months, reaching £22.2
billion, while the company’s risk weighted assets also rose to
£19.9 billion, a 17 percent increase.

Fee and commission income decrease

Another notable figure from the 2007 results is the 2 percent drop
in Barclaycard’s net fee and commission income. This number also
highlights Barclaycard’s response to the Office of Fair Trading’s
findings on late and overlimit fees in the UK. This saw a
comprehensive reduction in these fees that was applied in August
2006. However, this drop in potential revenue was offset somewhat
by the continued growth of Barclaycard International, which
conversely saw a rise in overall impairment charges. There was also
a rise in impairment charges for Barclaycard’s secured consumer
lending business.

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Operating expenses in 2007 for Barclaycard rose
by 12 percent from the previous year, although a large part of this
was due to the non-recurrence of a property gain reflected in its
2006 figures. Excluding this gain, operating expenses for
Barclaycard rose by 8 percent. Costs in the UK businesses were
broadly flat, with investment in new domestic product innovations
such as Barclaycard OnePulse being funded out of operating
Barclaycard International has seen continued
inward investment, with Barclaycard US notably turning in
profitable year-end numbers for the first time ever on the back of
solid average balance growth and a number of new card partnerships
with Princess Cruise Lines and Lufthansa. Seven new credit card
partnership deals were also forged across Europe in 2007, and
Barclaycard continued to expand its Scandinavian presence through
its Entercard joint venture, making its first foray into the Danish