Barclay's shareholders could wait some time for an increase in its dividend after the company said it would not put it up again until earnings reached two times income payouts.

Barclay's shareholders could wait some time for an increase in its dividend after the company said it would not put it up again until earnings reached two times income payouts.

Britain's third-largest bank unveiled profit figures for the first six months of the year largely in line with market expectations. Pre-tax profit was down a third on the same period last year at £2.75bn, thanks largely to a dramatic slump at its investment banking arm Barclays Capital. Revenues fell only slightly to £11.8bn when most analysts were expecting a large drop.

The company also cut costs by 3%, helped by a 15% fall in staff costs as it dispensed with expensive experienced staff and lowered bonuses for its investment bankers.

But loan impairments of some £2.8bn took many observers by surprise and there was scepticism about the modest writedowns the company made on assets linked to the credit markets.

Chief executive John Varley was cautious about the future: "The world in which we will be doing business in the next 12 months will be a world of economic slowdown but not a world of widespread recession."

Barclays reiterated it will pay a dividend of 11.5p a share in cash for the first half, unchanged from last year. The stock is currently yielding around 9% following recent falls in its share price.

Varley admitted that the experience of the early 1990s, when losses on loans to housebuilders and construction companies forced it to halve its dividend, continued to weigh on executives.

But he said: "All things being equal, the intention of the board would be to pay the dividend at the same level in 2008 as 2007."

Some £1.1bn of Barclays writedowns were from assets linked to the US sub-prime mortgage market.

Barclays has now made £3.6bn in writedowns, but this is far less than at rivals such as Royal Bank of Scotland, leaving analysts concerned that it could be hit if the credit markets continue to founder.

Barclays' UK retail banking operations had a strong year, with pre-tax profits up 7% to £690m as it took a 26% share of net mortgage lending. It also took in increased deposits. But the increased impairment charges to cover bad loans rose by 4% to £288m.

It was overseas where the company had its greatest successes. Almost two-thirds of its outlets are outside the UK, contributing 36% of group income but currently only 25% of profit.

Profits at Barclaycard were up 30% to £388m, helped by foreign sales, fewer bad debts from UK customers and a £41m contribution from the Goldfish business it bought earlier this year.

The company now has as many credit cards in issue outside the UK - some 11 million - as it does domestically.

But while profit rose from its western European retail and banking operations by 10% to £115m, this was in the headwind of losses on loans to Spanish builders, who are suffering from a dramatic property crash. Impairment charges for the region increased £71m to £103m.

But the real problems were seen in its investment banking business. At Barclays Capital, pre-tax profit fell 68% to £524m as the company took a £2bn hit from losses related to troubles in credit markets.

Barclays president Bob Diamond, who oversees the division, said market conditions had been the worst he had seen in 25 years in the business.

He said that actions by central banks, including the Bank of England, had helped to restore confidence in money markets.

But he warned of continuing volatility, at least until the bottom of the US housing market crash has been reached.

He added that the oil market was causing concern: "There is a serious imbalance structurally between supply and demand and we will continue to see significant volatility.

"We are not returning to the market conditions of 2005 and 2006. We are going to be dealing with conditions in 2008 and 2009 that are more difficult."