Barclays’ balance sheet balloons

Barclays Bank’s accounts for last year showed that they did make a profit of £6.1bn, albeit 14% lower than their profit for the year before. However the Times’s investigation of their balance sheet shows an extraordinary statistic – that their assets and liabilities each mushroomed to more than £2 trillion, both now larger than UK gross domestic product at £1.4 trillion. This is mostly because of hundreds of billions of dollars of derivative positions acquired alongside the September acquisition of the North American assets of the bankrupt Lehman Brothers. So far Barclays has avoided the need to seek funds from the government to shore up its finances – instead they raised £5.8bn of vital new capital from the state investment funds and royal families of Qatar and Abu Dhabi – but with only £29 billion of shareholders’ equity, it would need only a 1 per cent deterioration in the bank’s £2.05 trillion of assets to wipe out its capital cushion of £17 billion and require it to seek fresh capital.

As the Times’ article says, the size of its balance sheet would pose problems (to say the least!) for British taxpayers and affect the perceived creditworthiness of the UK Government in the unlikely event that the bank were to fail. If the government is to successfully raise the money to fund the budget deficit then its perceived creditworthiness is all-important - how many unlikely events have we seen in the last year or so?