Thursday, November 15, 2007

Barclays to Write Down $2.7B in Q3 and Q4

The writedowns at the banks continue with Barclays checking in. In writing off losses, timing is everything. The goal is to have the profits so the write-offs can be absorbed, hence that is why no one wants a panic, then you can’t control the timing of the write-offs. Text in bold is my emphasis. From Yahoo:

Barclays Plc, Britain's third-biggest bank, unveiled a 1.3 billion pound ($2.7 billion) writedown on its exposure to credit market problems on Thursday, less than was feared.

In a surprise trading update the Barclays Capital investment bank unit said it would write down 500 million pounds for the July-September quarter and 800 million pounds for October.

"We had a very strong income month in October and that's enabled us to absorb those writedowns," said John Varley, Barclays chief executive, adding that BarCap's income was a record for any month in the fourth quarter.

"We have been conservative, but we've also been firing on a lot of our cylinders in the income line and that enables us to report the results we've reported today," he told reporters on a conference call.

BarCap said the October writedown reflected the impact of rating agency downgrades on a broad range of CDOs and the subsequent market downturn.

It continues to have exposure to some areas under pressure, but the bank said it had sought to limit any future writedowns by valuing all its residential mortgage backed securities CDO collateral and second lien mortgage collateral at zero.

"This is going to be a one to two year workout period for subprime, the issues are deep and the excesses were severe so there will be a period to transfer the risk from those people who shouldn't have it to those that should," Bob Diamond, head of BarCap, said on the conference call.

"But that doesn't necessarily have to have contagion into leveraged finance and other credit.
Other banks have announced almost $50 billion of losses and writedowns in the past month.

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