John Varley, CEO of the U.K.'s third-largest bank, says first-quarter profits will fall below a year ago, but defying March’s craptacular trading conditions, the bank actually generated a first-quarter net at its securities unit, sidestepping the credit-related losses that plagued UBS, Credit Suisse, Citigroup and Merrill Lynch. So...what happened?

John Varley, chief executive of Barclays Bank, will tell shareholders at the annual meeting later on Thursday that trading conditions got tougher in March, but the bank, including its investment banking divisions, was still profitable in that month.

First-quarter profits would be below the same period of 2007, when conditions were still favourable, despite profits in January and February “in line with the monthly run rate for 2007”.

Mr Varley’s speech, published in advance of the meeting, comes a day after shareholders of Royal Bank of Scotland, Barclays’ successful rival in last year’s battle for control of Dutch lender ABN Amro, questioned their directors over the consequences of that victory.

His remarks are likely to rub salt in the Scottish bank’s wounds. Mr Varley explains that “our financial discipline restrained us in the ABN Amro transaction” and that “we concluded that we could not acquire ABN at a price that represented value for money to our shareholders.”

RBS this week launched a £12bn rights issue to rebuild its capital base, stretched by the ABN acquisition as well as the turmoil in credit markets.

Mr Varley will tell investors that while Barclays' Tier 1 capital was above its 7.25 per cent target at 7.6 per cent at the end of 2007, its core equity ratio was below the 5.25 per cent target at 5.1 per cent.

“We want to see our equity ratio at least at 5.25 per cent in time,” he said in the statement.

He does not say how Barclays plans to achieve that, but notes that last year the bank issued shares to China Development Bank and Temasek, the Singaporean investment authority. Mr Varley intends to tell shareholders: “We will remain active managers both of our balance sheet and of our capital ratios.”

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