Banks 'taking huge risks'

SOME banks face ?financial nemesis‘ from the recent rise in interest rates, according to the chief executive-elect of Barclays.

The extraordinary warning from finance director John Varley came today as he suggested that some players in banking were taking huge risks.

Even the quarter-point rise in base rate last month was enough to tip some players into trouble, he told analysts in a meeting that coincided with a confident trading statement from the bank.

‘Don't be seduced by the averages,‘ he said. The risk averages are ?very seductive and very reassuring‘, but they conceal serious dangers, he implied. ?We've been very clear about where on the risk curve we want to play,‘ he said, referring to Barclays' decision to cut back on mortgage lending, particularly in the buy-to-let sector, which he called ?racy‘.

He described Barclays' position as ?in sharp contradistinction to some of our competitors‘, but mentioned no names. The bank's bad-debt provisions were down although potential problem loans were up because of ?a couple of specific situations‘, though ?nothing causing me to lose sleep‘.

Barclays, meanwhile, shrugged off criticism over credit card charges and boardroom rule breaches, pledging that profits this year would beat City expectations.

In a bullish trading statement, chief executive Matt Barrett said: ?The strong and broadly based performance of the first half of 2003 continued into the third quarter. Current trends suggest that full-year profits before tax will be somewhat better than the market consensus of £3.686bn.‘

That would be a record for the bank, which made £3.205bn last year. Barclays reported strong business volume growth in its core personal financial services division, a good performance from Barclaycard and a strong contribution from business banking.

The bank said cost savings and cross-selling benefits from the Woolwich acquisition-in 2000 would exceed the target-for this year of £330m.

Barclays has come under fire for breaching recommendations on corporate governance by planning to promote Barrett from chief executive to chairman. It has also been criticised for its misleading credit card adverts, which promised ?0% forever‘.

The campaign was later withdrawn on the orders of the Office of Fair Trading.