Investment banking market conditions in May and June softened from the first quarter, mainly due to lower levels of capital markets and mergers and acquisition (M&A) activity, the bank said on Wednesday.

Barclays Finance Director Chris Lucas said he expected bad debts this year to drop by 15 to 20 percent from its charge of 8.1 billion pounds in 2009, signalling a drop of up to 1.6 billion pounds.

Impairment trends in Barclays' Spanish retail business had improved but conditions for its corporate business in Spain had worsened due to declining real estate valuations, he said.

Lucas was speaking at a presentation to analysts on Barclays' retail banking business, where the bank said it planned to target expansion in key overseas markets such as Spain, Portugal and Italy, and would consider deals.

By 1520, GMT Barclays shares were up 1.5 percent, halving an early gain but still outperforming a 0.6 percent rise by Europe's bank sector.

Antony Jenkins, head of global retail banking (GRB), said his unit was targeting strong profit growth and "mid-single digit" annual income growth over the next four years.

Overseas markets contribute 27 percent of retail banking profits and Jenkins said that would rise but he declined to say by how much.

Barclays will spend about 250 million pounds ($376 million) annually on improving customer service across its retail operations, which span 21 countries.

"Our plans are based on organic growth, though we would consider in-fill deals if they meet our strict financial hurdles," Jenkins told reporters on a conference call earlier on Wednesday.

Jenkins said he would look at "more significant opportunities" if they boosted scale, generated attractive returns and enhanced liquidity.
 

Barclays has expanded aggressively in southern Europe and some other markets in recent years and will focus on building up in the countries it has a presence, rather than enter new markets.

That includes becoming a top five bank in Spain and Portugal "over a reasonable time frame," Jenkins said. The bank ranks eighth in Portugal and sixth in Spain, excluding cajas, which are unlisted savings banks.

In Italy, he wants to get a top five presence in 10 key cities, mainly in the north where affluent customers are.

Jenkins was promoted to oversee all retail operations in a restructuring in November, which included the ousting of his predecessor, Frits Seegers.

Barclays has added more than 10 million retail customers in the last four years by building up its business in southern Europe and elsewhere, including entering new markets such as India, Pakistan, Russia and Indonesia.

But the bank has admitted its expansion in some markets was too aggressive at the wrong point in the cycle.

It suffered a big rise in retail bad debts last year in several countries and took a 100 million pound charge in March to quit retail banking in Indonesia and scale back operations in several other countries built up under Seegers.

"We have learned lessons from the past, principally about pacing investment for return and building scale and leveraging capabilities," GRB head Jenkins said.

Jenkins, who has previously worked at Citigroup and ran credit card business Barclaycard before taking the GRB helm, said he aimed to deliver "strong annual compound profit growth," increase deposits at a faster rate than loans and deliver a post-tax return on equity of 13 to 15 percent.

Barclays has been on the lookout for a retail bank in the United States, according to reports earlier this year, to build on its successful investment bank build-up there, although that is not expected to be a priority.