Barclays posted an annual profit pefore tax of £7.08bn, down from £7.14bn in 2006 but just ahead of forecasts centered at £7.05bn. Excluding a disposal in the previous year, underlying earnings were up 3%.
Impairment charges of £2.8bn were 9% ahead of market expectations, while the Tier 1 capital ratio came in at 7.8% - beating the the company target of 7.25%.
"This gives them a strong buffer to weather a storm," said analysts at UBS.
The bank's write-off for its structured credit products rose to £2.3bn gross, compared with the £1.7bn disclosed to the end of October. This was broadly in line with market forecasts, albeit these were set on a wide range.
"We view this as a solid set of numbers which should allay some concerns regarding the underlying earnings and balance sheet position," commented analysts at Merrill Lynch. "By division, Barcap was resilient while Barclaycard was weaker than expected."
Barclays announced a dividend of 34p per share, up 10% year-on-year and in line with forecasts.
Losses from assets lnked to US sub-prime mortgages was raised to £1.64bn, net a gain of £658m from revaluing its on debt. It had having previously announced a £1.3bn net write-down, including £400m in gains on valuation of notes.
"There has been alot of speculation over the last six months that Barclays Capital had suffered massive losses due its exposure to the US sub-prime crisis and other related products. However, in the end BarCap reported an impairment charge of £1.6bn which should soothe market concerns. And as we have highlighted before the Group's diversity has paid off with the Barclaycard and UK Retail Banking reporting strong profit growth and BGI and Barclays Wealth both benefiting from significant asset flows," said Nic Clarke, an analyst at Charles Stanley.
He drew comparisons with news from Credit Suisse today. The Swiss bank, which released annual figures a week ago and had been broadly untouched by the credit crunch, today marked down the value of asset-backed investments by $2.8bn.
"The Credit Suisse announcement this morning highlights that we are not out of the woods yet regarding the credit crunch situation. However, with the operating environment in the second half of 2007 very difficult for Barclays Capital, its second largest business, that Barclays has reported profits down just 1% in 2007 is impressive," he added.
The company said its total exposure to CDOs rose to £6bn, from £5bn at end October, while US sub-prime and SIV loans were broadly steady.
"It appears at first glance that Barclays has managed to limit the impact of most of the big problem areas in credit markets at the moment," said UBS. "The group has also announced a new three year performance plan pointing to growth in economic profit of 5-10% over the next 3 years, that is certainly well ahead of consensus."
Desutsche Bank, which had forecast £2.3bn of credit losses, told clients: "The dividend and ... tier 1 ratio of 7.8% should give greater confidence on balance sheet strength."
It said that Barclays Capital, the group's wealth management arm, had produced an "exceptionally strong result" with profits up 5% year-on-year to £2.3bn despite the £1.6bn of risk asset losses.
"Though cyclical profit pressures are clear, with earnings and dividends in line with market expectations and capital ratios substantially ahead, we remain constructive on the long term outlook for Barclays," the broker said in a note repeating "buy" advice.
Among the new disclosures, Barclays detailed £5bn of exposure to Alt-A mortgages. This type of debt is of higher quality than subprime loans but still considered risky. However, Barclays said there has been barely any failures in the Alt-A exposure, which is 96% is graded by bond rating agencies in the top two classes and has with a loan-to-value ratio of 81%.
The bank also revealed commercial mortgage and monoline-wrapped debt security exposures of £12bn and £1.3bn respectively. About 50% of the commercial mortgages are US based.
"Residual exposures give rise to the prospect of additional write-downs but these appear likely to be manageable to us," said UBS, which kept a "buy" rating. Cazenove said the disclosures "will provide some reassurance, particularly the relatively low monoline insurance exposure and the limited use of hedging against ABS CDOs" (Asset Backed Securities containing Collateralized Debt Obligations).
Citigroup repeated a "sell" rating. "Barclays provides little detail on the outlook for 2008 at the business level, preferring to comment on the prospects for global economic growth. The need for disciplined risk management and a rigorous approach to lending appear to confirm a weakening outlook. In difficult market conditions, we expect earnings momentum to be difficult, particularly in BarCap and UK Banking," analyst Tom Rayner wrote.
Shares in Barclays opened down 2.7% at 447.25p then rallied to a 4.6% gain at 481p by midday. They rose 8% in the previous session after the headline figures appeared in the weekend press.
Hemscott verdict: That in-line numbers have lifted the value of Barclays by £3bn inside two days shows the panic currently infecting the banking sector. That someone with inside knowledge of the results chose to leak them into positively-spinned press article over the weekend shows how deep that panic has infected the industry.
It would be understandable if someone close to the company wanted to broadcast the achievement of meeting expectations. It would have been easy to miss the positives in a statement from Barclays that ran to in excess of 29,000 words (longer than The Old Man and The Sea by 3,000 or so, incidentally). Luckily, all the salient points were to be found on the front page of the Sunday Times business section.
Enough of the delivery; what of the content?
On the face of it, it's a victory for BarCap. Management at the wealth management arm has done spectacularly well to limit the damage caused by toxic debt, keep a lid on costs and deliver profits up 5%. In the core banking side there were no unexpected nasties, while the increased dividend can be interpreted by the bulls as a sign of confidence (as the Sunday Times's Deep Throat was so keen to emphasise). And, after the opaquely dreadful numbers delivered by everyone from UBS to Bradford & Bingley in recent weeks, it's understandable that a relief rally should accompany write-downs that were no worse than feared.
In sum, consensus forecasts are unlikely to change much. That means Barclays shares are trading at just under seven times forward EPS compared with a UK sector on 8.8 times earnings, and are offering a dividend yield in excess of 7%. That's factoring in a lot of uncertainty. But then, this is a bank is still carrying a lot of potentially dodgy paper, including £12.4bn of commercial mortgages, £7.37bn of leveraged finance loans, £1.3bn monoline debt and nearly £10bn of sub-prime and barely-prime assets.
If economic conditions continue to deteriorate, the potential for disappointment is just as obvious as the potential upside. The panic may have subsided, but it'll be a long time before investors can afford to be calm.
