LONDON, August 4 – Leading British banks Barclays and HSBC raised hope of a recovery in the crisis-hit financial sector on Monday, sending share prices surging after they posted strong profits despite soaring bad loans.
The pair, which have avoided state control unlike other rival groups, posted combined net profits of 6.55 billion dollars (4.58 billion euros) for the first six months of the year.
In London trade, Barclays shares surged almost nine percent and HSBC stock won more than six percent at one stage, helping push the FTSE 100 index to its highest level so far this year.
Barclays\’ profit rose and although net earnings at HSBC fell they were better than expected and still reached 3.35 billion dollars.
The news set the tone for results due this week from the state-controlled lenders Lloyds and Royal Bank of Scotland, as well as Northern Rock, which has been nationalised.
All three were devastated by the global financial crisis and were bailed out by British Prime Minister Gordon Brown\’s Labour government.
However, Barclays said Monday that it made a "good start" to 2009, adding that it was "solidly profitable" and "strongly positioned for the upturn."
In addition, the company said it would resume shareholder dividend payments before the end of the year.
HSBC, Europe\’s biggest bank which is also listed in Hong Kong, said the results proved it could generate profits "throughout the business cycle — even in challenging market conditions."
The bank also forecast the deep downturn could be past the worst amid international efforts to repair the shattered global financial system, which has yet to recover from the credit crunch that erupted in August 2007.
"Operating conditions in the financial sector have continued to improve as the effects of government and central bank policies work through the system and it may be that we have passed, or are about to pass, the bottom of the cycle in the financial markets," said HSBC chairman Stephen Green.
"Nonetheless, the timing, shape and scale of any recovery in the wider economy remains highly uncertain. Our view continues to be cautious as long as a number of serious impediments to growth remain."
Barclays said its first-half net profits soared nearly 10 percent as its investment banking unit benefited from market turmoil and the part-purchase of Lehman Brothers.
Net earnings leapt 9.9 percent to 1.9 billion pounds (2.2 billion euros, 3.2 billion dollars) in the six months to the end of June, compared with 1.7 billion pounds in the same part of 2008.
But impairment charges and other credit provisions almost doubled to 4.56 billion pounds.
Barclays became the latest global bank in recent weeks to report higher earnings due to investment banking operations. Credit Suisse, Goldman Sachs, JPMorgan Chase and Deutsche Bank were also boosted by investment bank activities.
Oriel Securities analyst Mike Trippit said that Barclays had posted "reasonably strong numbers," adding that a 37-percent jump in revenues to 16.25 billion pounds helped it absorb rising costs and bad debts.
Barclays chief executive John Varley said the group was "independent and profitable" — but admitted that the past two years had been a "humbling experience".
The bank has avoided nationalisation in the wake of the credit crunch by courting investment from wealthy Gulf states.
In 2008, Barclays secured additional capital from investors in Abu Dhabi and Qatar in order to bolster its finances.
Meanwhile, HSBC said Monday that its first-half net profits slumped by 57 percent to 3.35 billion dollars as bad debts ballooned by 39 percent to 13.9 billion dollars.
Despite tumbling profits, HSBC had bolstered its finances earlier this year when it raised 12.5 billion pounds via a sale of new shares.
"HSBC is today underlining its credentials as a major force in the world of global banking," said analyst Keith Bowman at Hargreaves Lansdown stockbrokers.
"Profits have surpassed expectations, questions over the bank\’s financial strength have been laid to rest via a substantial fund raising, whilst management direction remains unimpeded by government intervention."