HIGH street banking group Barclays today posted profits of £7.08bn last year, despite a £1.64bn billion hit from the credit crunch.

The profits were broadly flat on the previous year, down one per cent against the £7.14bn record haul seen in 2006 as Barclays was forced to make hefty write-downs amid the meltdown in America’s sub-prime mortgage market and subsequent credit squeeze.

The group today warned of further challenges amid a slowing economy in the US and UK, but said its “resilient” performance last year gave it greater confidence to weather the storm.

Barclays - the first of the “big five” UK banks to report annual results - revealed it had set aside £2.8bn in bad debt charges and impairment provisions, up 30 per cent on the year before. But the group said the increase was largely down to a £782m hit from exposure to the US high risk home loan defaults and the credit turmoil.

Arrears and defaults within its retail banking and Barclaycard arm “significantly” improved, down seven per cent to £2.01bn, according to the group.

John Varley, Barclays group chief executive, said: “Barclays delivered a resilient performance in 2007 in a year of contrasting market conditions.”

He added the group was “not immune from the impact of the credit market turbulence” in the second half.

Pre-tax profits

UK retail banking pre-tax profits rose nine per cent to £1.28bn in spite of a £116m payout to settle customer claims on overdraft fees from previous years.
Its Barclaycard business also saw a hike in profits, up 18 per cent on 2006 to £540m, driven by a robust performance in its international operation, with 40 per cent of cards now held outside of the UK.

The group’s investment banking arm Barclays Capital took the £1.6bn impact from the credit crunch in its stride, improving on the 2006 record pre-tax profits, up another five per cent to £2.34bn.

Barclays gave investors a boost, with a 10 per cent hike in the dividend payment, which had been widely expected following speculation over the weekend.

The group gave a realistic outlook for the year ahead, with prospects of tougher economic conditions and the ongoing credit crisis.

Barclays investment banking boss Bob Diamond said the group was braced for at least six months of “difficult and challenging market conditions”.