Expansion at Barclays will cost money

The bank's shares dropped 4% on Thursday afternoon, even though a representative said he expected growth to exceed market expectations.

Finance director Naguib Kheraj told analysts he expected income growth of up to 6% in 2005.

Barclays shares have risen 10% over the last five weeks due to strong earnings.

'Pain' ahead

But observers are sceptical about the sustainability of growth at investment bank arm Barclays Capital, as higher interest rates dampen bond sales and trading.

In Europe, investment banks have seen a decline in profits from sales and trading while third quarter revenues at US investment banks has also been down.

What I'm concerned about is where the sustainable revenue is going to come from Norrie Morrison, analyst Barclays share price

"In the UK we are going to see more pain and I find it difficult to believe that in a rising interest rate environment Barclays Capital can continue to generate stonking results," Norrie Morrison, analyst at Fox-Pitt Kelton said.

"What I'm concerned about is where the sustainable revenue is going to come from."

Barclays full-year pre-tax profit is widely expected to be �4.54bn ($8.44bn) - an 18% increase on the previous year.

Cost growth, however, exceeded revenue growth in the third quarter, as a result of acquisitions, the rising costs of regulation and staff increases at Barclays Capital.