Barclays offer may appeal to ABN Amro

Barclays First-Half Net Rises 14% on Securities Unit (Update3)
By Ben Livesey and Jon Menon

Aug. 2 (Bloomberg) -- Barclays Plc, the U.K. bank competing to buy ABN Amro Holding NV, said first-half net income increased 14 percent, helped by record gains in the securities unit.

Barclays's first-half profit rose to 2.63 billion pounds ($5.35 billion), or 40.1 pence a share, from 2.3 billion pounds, or 35.1 pence a year earlier, it said today in a statement. Barclays Capital, the investment bank, increased earnings in July, ``a time of turbulence in the capital markets,'' Chief Executive Officer John Varley said.

The investment bank, which provided 39 percent of total profit, predicts credit markets will be ``challenging for quite a while.'' Barclays sells and invests in securities that package subprime mortgages, which ``will take some time to work out,'' said Barclays President Robert Diamond. U.S. mortgage foreclosures hit a 10-year high after less-credit worthy borrowers defaulted.

``Profits have been driven by excellent profit growth at Barclays Capital, but people are concerned that cannot go on forever,'' said Simon Willis, an analyst at NCB Group in London with a ``buy'' rating on the stock. ``Investors worry that something will come out on subprime that will cost them a meaningful sum of money.''

Shares of Barclays rose 2.1 percent to 691.5 pence at 8:10 a.m. in London, valuing the bank at 45.3 billion pounds. The shares are little changed since March 16, the last trading day before Barclays said it was in talks with ABN Amro.

China, Singapore
Barclays announced first-half pretax profit and division results July 23. Pretax profit at the investment bank rose 33 percent to 1.66 billion pounds, helped by structured credit, derivatives, equities and commodities. Barclays Global Investors, the asset-management unit, increased pretax profit by 7 percent to 388 million pounds.

Singapore's Temasek Holdings Pte and China Development Bank agreed July 25 to buy stakes totaling 9.2 percent in Barclays. The investments will be reduced to 5.2 percent in the event that the ABN Amro takeover doesn't go through.

The partnership with China Development Bank will lift the bank's earnings, Varley said today. ``We believe that the further earnings growth unlocked by that agreement is material, that it creates further exposure to Asia, which fits well with our strategy, and that it will create further benefits for all shareholders,'' Varley said today.

Losing Ground
Barclays has lost ground in the battle to buy ABN Amro in the biggest bank takeover. Barclays's shares are down 4.6 percent since it sweetened its all-stock offer. The new bid, which includes 37 percent cash, was valued yesterday at 65.3 billion euros ($89.3 billion), less than the all-cash bid of 72.1 billion euros from a group led by Royal Bank of Scotland Group Plc.

ABN Amro withdrew its recommendation of the Barclays's bid, saying it is financially inferior to the Royal Bank group's offer. Royal Bank's bidding partners are Fortis, Belgium's largest financial-services company, and Banco Santander SA, Spain's biggest bank.

ABN Amro had backed Barclays since April, in part because the London-based said it would keep the biggest Dutch lender intact. ABN Amro declined to recommend the Royal Bank-led bid, citing ``unresolved questions'' about the group's proposed breakup of the 183-year-old company.

``There is significant dependency on where the share price is'' when ABN Amro shareholders vote on the deal, Varley said on a conference call today with reporters. ``The issue is not where the share price is today.'' He said he is ``confident'' Barclays will succeed in the acquisition.

`In Play'
``If Barclays doesn't buy ABN then it will be perceived as being in play,'' Willis said.

Pretax profit at Barclays's credit card unit fell 17 percent to 272 million pounds as the bank lost money on the sale of its Monument subprime business. U.K. consumer-banking profit rose 8.5 percent to 651 million pounds, while total bad loan charges declined 9.3 percent to 959 million pounds, the company said.

Overseas bank profit declined 12 percent to 452 million pounds as the weaker currency hurt earnings at its Absa unit in South Africa, the company said.

Expenses rose 9.2 percent to 6.85 billion pounds as the company added employees in Barclays Capital, Barclays Global Investors and Absa in South Africa. Revenue rose 8.5 percent to 11.9 billion pounds, lifted by Barclays Capital, the company said.