Barclays' profits rise 44pc as bad debts plunge

Figures revealed that sharply lower write-downs helped it deliver 3.4bn of profits in the Barclays Capital division – more than 80 per cent of its overall profits haul.

Barclays said it had set aside another 1.7bn in bonuses for staff across the bank, or 1.4bn excluding money deferred from previous years – up 18 per cent year-on-year.

But the BarCap division was hit by a "sovereign debt storm" in the second quarter, according to the group, with top line income down by almost a third, while it said trading revenues were 15 per cent lower in the second quarter compared with the previous three months.

Shares eased back 3 per cent as investors reacted to the BarCap slowdown and also looked to take profits after a month-long rally that has seen the stock rise by around 30 per cent.

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said: "The reliance on the investment banking operation, where progress has slowed, continues to cast something of a shadow over the shares."

But he added: "In all, this is a robust performance given a difficult first half of the year."

The results keep up the momentum for UK banks as the sector makes a strong recovery from the financial crisis.

On Wednesday, Lloyds Banking Group returned to the black with pre-tax profits of 1.6bn and Royal Bank of Scotland is also expected to have clawed its way out of the red in the first six months of the year.

But the sector's profits cheer is likely to fuel anger over lending levels to businesses, as banks come under attack for failing to ease the flow of credit.

Barclays refuted claims they making borrowing harder, saying it lent 18bn to UK households and businesses.

But on a net basis – stripping out repayments – lending to businesses with turnovers of up to 5m rose only slightly since the end of 2009.