Barclays’ profit fell 40% after setting aside £1.3bn to cover US trade failures.
Profit before tax fell from £2.5bn in April-June, the British bank said
The lender has been hit with soaring conduct costs to £1.3bn from £143m a year ago after it was forced to start buying back unauthorised sales of U.S. securities. Some of that funding has been used to address potential fines from U.S. regulators for the loophole.
Barclays Chief Executive CS Venkatakrishnan announced on Thursday that he had commissioned an external review of the trading error, which will soon be handed over to the board.
“We will carefully review all of these findings and take appropriate action,” he said, adding that the bank “continues to actively cooperate with the SEC,” which could impose fines.
The bank also asked for a 200 million pound fee to cover a potential default in the second quarter, although much of the charge was related to its decision to buy the credit card business of U.S. clothing retailer Gap.
Barclays did not set aside additional funds to cushion the blow from a potential U.K. default, but said it had factored in rising inflation and its impact on borrowers with larger bills.
The price of basic necessities, including food and fuel, pushed UK inflation to a 40-year high of 9.4% in June.
Barclays said it expects impairments related to potential defaults to remain below pre-pandemic levels, due in part to high returns on unsecured products such as credit cards, more cautious spending by customers and savings accumulated during the pandemic.
The bank’s chief financial officer, Anna Cross, said Barclays was closely monitoring “minor behavioural changes”, including whether customers started relying on overdrafts or using credit cards to withdraw cash.
“We haven’t seen any significant change in behavior at all,” Cross said on Thursday. “I think it’s because of rationally changing their spending habits. But during the Covid-19 pandemic, we’ve also seen real savings accumulated by consumers and businesses, and [subsequent] repayments in the form of unsecured debt.”
“They came into this environment much better financially than they were before the pandemic,” she added.
The lender also reported that investment banking fees fell 31% to £1.2m in the first half of the year, reflecting a slowdown in deals and acquisitions by companies worried about a weaker economic outlook.
Barclays said it expects UK GDP growth to average 3.9% this year before falling to 1.7% by 2023. “There are definitely pressures on the economy…so we think growth will slow,” Venkatakrishnan said. “It’s hard to say at the moment if this is a real recession.”
The CEO added that the bank is also preparing to raise interest rates further to 2.5% by the end of the year, which could further boost its net interest margin – a key measure of profitability, the difference between profit and profit . Announce loan repayment and deposit payment.
Barclays has benefited from months of UK interest rate hikes, which means it can charge borrowers more for loans and mortgages. The lender appeared to take advantage of the interest rate outlook when it bought specialist lender Kensington Mortgages for £2.3bn last month.
Despite lower second-quarter profits, Barclays has kept its bonus pool steady and spent more than £1bn in bonuses helping top bankers in the first six months of the year.
Reserved for Barclays’ best players, the pot will be built over the next six months and distributed to bankers and executives, including Venkatakrishnan, during the normal payout in the spring.
