Barclays Capital has delivered record profit before tax and net income. Profit before tax increased 66% (496m) to 1,246m (2005: 750m). This was the result of a strong income performance driven by higher business volumes and client activity levels. Net income increased 58% (1,238m) to 3,367m (2005: 2,129m). Profit before tax for Absa Capital was 45m. Excluding Absa Capital, profit before tax increased by 60%.
Total income increased 58% (1,256m) to 3,437m (2005: 2,181m) as a result of very strong growth across the Rates and Credit businesses. Income grew across all asset classes, in particular interest rate products, equity products, currency products, emerging markets, credit products and commodities.
Income by geography was well spread with significant contributions from the US, Europe and Asia. The top line performance reflects returns from past investments and the strength of the client franchise. Average DVaR grew to 36m (2005: 30m) well below the rate of income growth.
Secondary income, comprising principal transactions (net trading income and net investment income) and net interest income, is mainly generated from providing client financing and risk management solutions. Secondary income increased 62% (1,111m) to 2,911m (2005: 1,800m).
Net trading income increased 92% (1,024m) to 2,139m (2005: 1,115m) with very strong contributions across the Rates and Credit businesses, in particular equities, commodities, fixed income and credit derivatives. These results were driven by higher volumes of client led activity and favorable market conditions. Net investment income increased 73% (117m) to 277m (2005: 160m) driven by investment realizations, primarily in Private Equity and structured capital markets. Net interest income decreased 6% (30m) to 495m (2005: 525m) driven by lower contributions from money markets.
Primary income, which comprises net fee and commission income from advisory and origination activities, grew 38% (143m) to 516m (2005: 373m). This reflected higher volumes and continued market share gains in a number of key markets, with strong contributions from bonds, European leveraged loans and convertibles issuances.
Impairment charges of 70m relate primarily to impairment charges on available for sale assets of 83m, partially offset by recoveries in the loan portfolio. The impairment charge on available for sale assets arose where an intention to sell caused losses in the available for sale portfolio to be treated as other than temporary in nature. The impairment charge arose from interest rate movements rather than credit deterioration. There is a corresponding gain recognized in net trading income.
Operating expenses increased 54% (742m) to 2,121m (2005: 1,379m), reflecting higher performance related costs due to strong results. The cost : net income ratio improved to 63% (2005: 65%). Staff costs to net income ratio improved to 51% (2005: 52%). Compared with the first half of 2005, performance related pay, discretionary investment spend and short-term contractor resource represented a higher proportion of operating expenses of 54% (2005: 46%).
Total headcount increased by 600 during the first half of 2006 to 10,500 (31st December 2005: 9,900). Growth was broadly based across all regions and reflected further investments in the front office, systems development and control functions to support greater business volumes.