Barclays sees challenging markets through 2009

LONDON (Reuters) - Barclays said it expects difficult conditions in financial markets to continue through next year but its investment bank arm and broader business are well placed to weather the downturn.

"Our operating hypothesis is that we're not going back to markets like 2005 and 2006, we're going to be in more challenging environments for the balance of 2008 and really throughout 2009," Bob Diamond, head of investment bank arm Barclays Capital, said on a conference call.

The bank said against that backdrop it planned to keep its capital cushion above its long-term target. Its core tier 1 capital ratio was 5 percent at the end of June, but rose to 6.3 percent after a 4.5 billion pound fundraising.

"We're clear in saying you can expect there to be a substantial margin between the target of 5.25 percent and what we choose to run," said Barclays Chief Executive John Varley.

Varley said he was "completely confident" in the level of the bank's writedowns after it marked down the value of its credit market exposure by 2 billion pounds in the first half. That reflected a "more conservative" stance on its monoline insurer exposure and adverse market movements at the end of June, it said.

(Reporting by Steve Slater)