Barclays says trading unit profitable in August

British bank, with a deal in the balance, fears major losses from overexposure to risky mortgages.

LONDON (AP) -- Barclays, the British bank in a bidding war for ABN Amro Holding, said Monday that its securities unit "traded profitably" last month, easing fears that the bank was overexposed to the credit crisis that has swept global markets.

Barclays (Charts), Britain's third-largest bank, borrowed twice in two weeks from the Bank of England's emergency loan facility this month, but sources said at the time that the loans were due to technical glitches rather than a shortage of funds.

"Barclays Capital traded profitably in August 2007, after full allocation of costs and the mark to market of all positions," said Bob Diamond, head of investment banking at Barclays, in a statement coinciding with an investor presentation in New York. "Year-to-date profits are well ahead of 2006."

Shrinking global credit levels started with defaults on U.S. subprime mortgages, or home loans made to people with weak credit histories. The crisis has spread because banks have repackaged risky loans with the more reliable, and sold them to a wide range of investors across the globe.

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Attention was drawn to Barclays when it turned to the Bank of England as a lender of last resort - once after a loan from HSBC Holdings was delayed and again after a breakdown in the banking clearance system.

"I find it amazing there was any question about a bank the size and quality of Barclays to fund itself," Diamond said in notes prepared for the U.S. investor presentation and posted on the Barclays Web site. "In fact, as in previous times of market turbulence, we've been net recipients of liquidity as a haven in rough seas."

Diamond said that Barclay's mortgage and asset-backed business has been a good growth area, but accounted for less than 5 percent of its revenue based on its first-half results.

"Subprime is an even smaller piece of this," he said.

Diamond also addressed concerns about Barclay's structured investment vehicles, known as SIV-lites.

Barclays denies exposure to failed debt vehicles

Edward Cahill, who was head of the European collateralized debt obligation division, resigned earlier this month, and the bank injected $1.6 billion into a SIV-lite run by Cairn Capital to rescue it from collapse after a failed attempt to raise money in the credit markets.

Two similar funds set up by Barclays Capital, Mainsail II and Golden Key, were forced to begin selling assets earlier this month because they were unable to raise new financing.

Diamond said Barclays had structured four SIV-lites for managers looking to increase their exposure to credit, but neither selected nor managed the assets.

"As liquidity in the short-term debt markets has tightened and asset prices have declined we've been working with our clients to restructure these vehicles," he said, adding those moves were not "bailouts."

"It's also worth noting that SIV-lites constitute in total about $10 billion of a market in asset-backed commercial paper worth $1.2 trillion," he said.