- guardian.co.uk, Monday 3 August 2009 10.24 BST
The investment banking arms of both banks led the way, less than a year after the taxpayer had to step in to bail out the banking system. Barclays's investment banking profits doubled, allowing it to report an 8% rise in first-half profits to £3bn – despite a dramatic jump in the charge to cover bad debts.
At HSBC, the UK's biggest bank, directors said they were "pleased" with its results, driven by an "excellent performance" in its investment banking arm. HSBC's pre-tax profit was $5bn (£3bn), down 51% on the same period last year, while its charge against bad debts rose by $3.8bn to $13bn. Profits in the investment banking arm jumped 125% to $6.2bn.
The surge in profits in the Barclays Capital investment banking arm to £1bn indicates that the 21,000 staff are in line for big bonuses this year after taking a 40% cut to payouts last year. Bob Diamond, president of Barclays and head of the investment bank, said that the record revenues in BarCap in the first six months of the year were "sustainable", which will fuel expectations of a return of bonuses less than a year after the taxpayer bailout of the banking system.
Barclays's chief executive, John Varley, who described the tumultuous events of the last two years as "humbling", stressed that bonuses would not be paid until the financial year ended and would be subject to tougher new rules. These are being devised by the bank's senior independent director, Sir Richard Broadbent, who will brief major shareholders later this year.
Varley said: "We don't pay bonuses at this time of year. They are paid on full-year performance."
The bank may find itself on a collision course with politicians who have blamed bonuses for the financial crisis by encouraging traders to take too many risks. Vince Cable, the Liberal Democrat Treasury spokesman, said: "Without the taxpayer many bankers would be without a job, let alone a huge bonus. Their greed and excess risk taking led to this crisis, which is now costing millions their jobs and many their homes."
While Barclays has not needed to take any taxpayer money directly, the financial system is receiving unusual behind-the-scenes support from the government. The bank raised £7bn last year and is now 30% owned by Middle Eastern investors.
Although the profits were below expectations - which were for profits of £3.2bn - shares in Barclays had risen by almost 6% to 320p. HSBC shares were also up over 6%, at 644p, helping to send the FTSE 100 index up more than 1% in morning trading.
The rise in profits at BarCap, which has been helped by the acquisition of the Wall Street operations of the collapsed Lehman Brothers last year, helped to negate a 61% drop in profits in its high street banking operation, which stood at £268m, and a fall in commercial banking profits to £404m from £702m.
BarCap was by far the fastest growing division, although Varley indicated that the bank's intention was for its profits never to be more than a third of the group's overall total. The group, which has reported profits for each period during the financial crisis when other banks have collapsed to record losses, is becoming more international. "We are a British company with an increasingly international footprint and earnings base. Our strategy has helped us weather the crisis and we want our employees, customers and shareholders alike to continue to benefit from it over time," said Varley.
The impairment charge to cover bad debts of £4.5bn compares with £2.4bn a year ago – an 86% rise – but the bank indicated that the rate of problems facing customers might be slowing. The charge includes £1.1bn against credit market exposure within Barclays Capital, and significant increases in the corporate loan books of both the commercial bank and BarCap. In UK retail banking, impairment charges increased – mainly in consumer lending – as unemployment continued to rise, but mortgage impairment charges remained relatively low.
Barclays's finance director, Chris Lucas, said: "For the remainder of 2009 we expect credit market losses to be lower but impairment trends to be consistent with those experienced over the first half."
The bank repeated that it would start to pay dividends again before the end of the year but that the payouts would not be at the same level as they had been before the credit crisis began.
Barclays stressed that it had exceeded its own target of £11bn for lending - an offer it made to the government when it decided not to participate in the asset protection scheme, which is insuring the most troublesome assets of Lloyds Banking Group and Royal Bank of Scotland.
The 2008 annual report shows that directors' bonuses are linked to a number factors, including measures of total shareholder return and economic profit - a pure measure of profit which includes the cost of capital. Varley pointed out that in terms of total shareholder return the bank was in the top quartile of its peer group but the economic profit measure was being hit by the higher requirements from the Financial Services Authority.
Barclays also revealed it had granted an £800,000 overdraft facility to an unnamed director and a £500,000 mortgage to another member of "key management personnel".