Barclays Bank forecast today that the lack of appetite for leveraged debt could reverse in less than three months, despite reporting a 26 per cent decline in profit from private equity deals.

The bank, currently battling with Royal Bank of Scotland (RBS) to acquire ABN Amro, the Dutch bank, said net investment income in the six months to June 30, 2007 fell from £277 million last year to £206 million, owing to lower gains from both private equity and structured finance deals.

The Times revealed today that Barclays Capital, Barclays' investment banking arm, is currently saddled with $16.2 billion (£7.9 billion) of agreed loans that it has been unable to syndicate out to other financial institutions because of concerns about the health of the current credit market.

Barclays Capital was one of three banks that underwrote £9 billion worth of debt that formed part of Kohlberg Kravis Roberts' winning bid for Alliance Boots. All three are now shouldering the debt after being unable to parcel it out, and therefore spread the risk, to other lenders.

Despite this, Bob Diamond, president of Barclays and the chief executive of Barclays Capital, said that he was "sanguine" about the current credit market, adding: "Clearly there is an imbalance in that market and whether it takes one month or two months or three months to work itself out we will have to see."

He said he was less confident about the struggling US sub-prime mortgage market, which he said would take longer to correct itself.

UK mortgage lending at Barclays was up from £59.1 billion to £65 billion in the first six months of the year.

Overall, Barclays Capital reported a 33 per cent increase in profits to £1.6 billion, driven by growth in areas such as equity and derivatives.

Shares in Barclays rose 1.9 per cent to 691p in early trading as the bank said group net income at the half-way stage rose by 9 per cent to £11.9 billion, and impairment charges tightened from £1 billion last year to £959 million in the first six months of 2007. Barclays returned £87 million to customers for unauthorised overdraft charges.

Earlier this week, ABN Amro withdrew its support for Barclays' bid, which it originally supported when the deal was first announced in April. John Varley, chief executive of Barclays, said this morning that he was confident that Barclays could win the battle.

Barclays recently improved its offer for ABN to €67.5 billion (£45.4 billion) after the China Development Bank agreed to buy a £6.6 billion stake in the UK bank. RBS, leading a consortium including Spain's Santander and Fortis of Belgium, has put a €71.1 billion offer on the table.

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