Barclays Boosted by Lehman Ops

Today, Barclays PLC (BCS - Analyst Report, or Barclays) posted a 15% year-over-year increase in pretax profits to £1.4 billion, driven by a 361% gain in pretax earnings to £907 million at Barclays Capital, stemming from the acquisition and integration of Lehman’s North American operations. While net income attributable to shareholders rose 12%, diluted earnings per share dropped 33% due to dilution caused from the sale of additional shares last year.

Net revenues increased 42% year over year due to the Lehman acquisition and strong growth at the international businesses in Global Retail and Commercial Banking on growth in assets. However, profits at all of Barclays’ retail and commercial banking operations were hit by a sharp deterioration in credit quality and higher loan impairment charges, particularly in the UK, Spain, and India. Total impairment charges rose 79% year over year to £2.3 billion, including £1.1 billion at Barclays Capital, which was up 45% year over year and included credit market write-downs of £754 million.

For all of 2009, Barclays expects impairment charges at the higher end of its 130-150 basis-point range, which compares to 131 basis points in the first quarter.

Barclays continues to take steps to strengthen its balance sheet. The company reduced its total credit market risk exposures by £5.2 billion sequentially to £37.7 billion at the end of March through net sales and paydowns. Moreover, with the sale of iShares, Barclays expects its pro forma Tier 1 capital ratio to rise about 54 basis points to 10.3% as of December 31, 2008.

Barclays intends to begin paying a quarterly cash dividend (compared to a semi-annual dividend previously), effective in 2009’s fourth quarter. Negatively, Barclays will reduce the payout ratio from the 50% level of former years.

We have a Hold on BCS. The current Zacks rank is 3, indicating no near-term up or down bias in Barclays’ share price. In morning trading, BCS shares are down about 9% from Wednesday’s closing price of $18.26.

(US$1 = £0.66; 1 ADS = 1 share)