Barclays Taking $2.7 Billion Writedown By Jane Wardell, AP Business Writer

LONDON (AP) -- Barclays Group PLC took a $2.7 billion writedown for losses on securities linked to the U.S. subprime mortgage market collapse -- less than the market had expected -- in a surprise trading update on Thursday.Barclays, which was not due to provide an update until later this month, revealed the loss in its Barclays Capital investment unit following investor criticism over its silence and after market rumors over the past week of a much larger writedown weighed heavily on its share price.

Shares in the bank jumped more than 6 percent after the update showing a 500 million pound ($1.03 billion) writedown in the July-to-September quarter and a 800 million pound ($1.66 billion) writedown in October.

However, the gains were lost later in the session -- the stock slipped 1.2 percent to 526.5 pence ($10.78 in afternoon trading -- as analysts factored in expectations of restricted growth at Barclays Capital next year and ongoing uncertainty in debt markets. Its U.S.-traded shares fell 82 cents to $43.06, down 1.9 percent.

Barclays Capital chief Bob Diamond acknowledged that the market would need much more time to get over recent subprime issues.

"Subprime will be in work-out for a couple of years, there's no doubt about it," he said.

Diamond said there was no risk of further writedowns of Barclays' residential mortgage-backed securities collateralized debt obligations, or CDOs.

Barclays declined to say if it would make additional writedowns from exposure in other parts of its business.

The Barclays statement came a day after HSBC Holdings PLC, Europe's biggest bank, reported that it took a $3.4 billion impairment charge at its U.S. consumer finance division, HSBC Finance Corp.

HSBC also warned that its bad debts could increase if the U.S. housing market weakens further -- but like Barclays, reassured investors that third-quarter profits for its global business were ahead of last year.

Barclays said that net income and profit before tax for the 10 months to Oct. 31 beat last year's record results as good performances in Europe, Asia and the U.K. helped offset problems related to the U.S. crisis in mortgages to borrowers with poor credit histories.

"In announcing as we are very strong performance, indeed record performance, for the first 10 months of the year, I think we're able to give strong reassurance to our shareholders that they have nothing to worry about," said Chief Executive John Varley.

The scale of the losses were "certainly not in line with the worst-case scenario which some had been factoring in and, indeed, Barclays Capital as a whole improved on its 2006 performance -- quite an achievement given the wider global trading concerns," said Richard Hunter, an analyst at Hargreaves Lansdown Stockbrokers.

Collins Stewart analyst Alex Potter noted that Barclays' writeoff level was 7 percent, based on a total of 18.4 billion pounds ($37.7 billion) of exposure to U.S. subprime and leveraged finance. That put it well ahead of its investment banking peers in the range of 3 percent to 5 percent, he said.

"We cannot categorically state that this is the end of the writedowns but this gives us confidence," said Potter, who rated Barclays shares as a long-term buy.

Striking a skeptical note, however, Bear Stearns analyst Robert Sage commented: "We still remain unconvinced on the outlook for Barclays given its revenue growth outlook, although we expect this statement to result in a positive bounce for the shares."

Barclays said it would provide a full third-quarter update as originally scheduled on Nov. 27.

http://www.investorrelations.barclays.co.uk