Barclays sees profits drop 24% after hefty charges

Barclays has reported a 24% drop in half-year profits to £3.7 billion after taking a mammoth hit from a US trading blunder and a charge to cover loan losses in the cost-of-living crisis.

The banking giant’s profits for the six months to June 30 fell by more than expected – down from £4.9 billion a year ago – after it revealed a £1.5 billion estimated cost impact from the debacle in its structured products division.

Barclays also said it put aside £165 million for a potential fine for the error, which saw it sell more structured notes than it was allowed to under US rules, and is being scrutinised by regulators.

It said the impact of the trading mistake was softened by £758 million gain made on a hedge placed by Barclays against losses arising from the error.

This meant that, net of tax, the bottom-line charge relating to the US trading saga stood at £581 million, of which £341 million was taken in the second quarter.

The lender also revealed it put by £341 million for potential loan losses as the economic outlook has weakened due to soaring inflation.

Barclays chief executive CS Venkatakrishnan said: “We are alert to the pressure that the rising cost of living will have on our customers and colleagues.

“We have a range of measures in place to help and are looking to do more.

“With our resilient income growth and balance sheet strength, we can provide that support while distributing excess capital, having announced a half-year dividend of 2.25p per share and an intention to initiate a further share buyback of £500 million.”

The group warned that its annual costs are set to rise to around £16.7 billion, up from previous guidance for £15 billion, as a result of the US structured notes error and a weaker pound against the US dollar.

In spite of the charges, Barclays said it will pay out a dividend of 2.25p per share and launch a buyback of up to £500 million.

Half-year figures showed its UK arm was boosted by rising interest rates, although this was offset by cash set aside for future bad debts and a competitive mortgage market, with half-year pre-tax profit before tax decreased to £1.2 billion, down from £1.5 billion a year ago.

The group said while the economic outlook had worsened, it expects loan defaults to remain below levels seen before the pandemic struck, thanks to lower more risky lending.

Barclays expects UK growth to slow, but said it was “difficult to say” if there would be a recession at this stage.

It expects UK interest rates to reach 2.5%, up from 1.25% currently, by the year end.

The group is not yet seeing significant signs of stress among customers, who are acting “rationally”, according to the bank – such as paying off credit card bills and remortgaging early to secure cheaper rates.

But Mr Venkatakrishnan, known as Venkat, said: “I’m conscious that we live in unusually uncertain times.

“This drives our approach to managing our balance sheet, our provisions and a watchful stance on our customers.”