John Farley, the group's chief executive, said: “The excellent results of the first half were achieved in a relatively benign environment; in the second half we were not immune from the impact of the credit market turbulence.”
The bank said the losses, attributed to “dislocations in the credit market”, were primarily linked to super-senior exposures in collaterised debt obligations (CDOs) of asset-backed securities (ABSs), managed by Barclays Capital, the bank's investment banking arm. As at December 31, these exposures stood at £4.7 billion, after writedown, which is 36% lower than its £7.4 billion exposure on June 30. The collateral for the ABS CDO super-senior exposures is primarily comprised of residential mortgage-backed securities. Barclays also revealed a £1.3 billion exposure to the troubled monoline insurers.
Alliance & Leicester, another London-based bank, has confirmed a £185 million loss in its 2007 earnings due to US subprime-related writedowns, in line with its January 29 estimates. In its earnings report, released on February 20, the bank revealed that the losses, caused by impairment charges and fair-value adjustments on treasury investments, had reduced operating profits from £602 million to £417 million. The writedowns include a £153 million impairment charge to investments in mezzanine and capital notes in structured investment vehicles, and another £32 million loss resulting from changes in the market value of floating-rate notes, consumer ABSs held as trading securities, and CDOs.
The two banks join the growing line of financial institutions that have had to write down their assets due to the looming credit crisis. Some of their rivals have had to take multi-billion-dollar losses, with estimates of total global losses reaching $400 billion.