Finance / Barclays sets aside another £700m for PPI claims as profits leap to £2.34bn
Barclays sets aside another £700m for PPI claims as profits leap to £2.34bn
28 July 2017
Barclays has seen half-year profits surge, but said it would have to fork out an extra £700 million to meet compensation claims for mis-selling payment protection insurance (PPI).
Group pre-tax profits jumped 13% to £2.34 billion for the six months ending in June, as the lender signalled the end of a major corporate restructure designed to focus on its core UK and US business.
However, the legacy of the PPI scandal continued to affect the bank, with core profit before tax slipping 25% to £2.98 billion in response to the extra PPI provision.
Chief executive Jes Staley said: "Our business is now radically simplified, the restructuring is complete, our capital ratio is within our end-state target range, and, while we are also working to put conduct issues behind us, we can now focus on what matters most to our shareholders: improving group returns."
The second quarter marked a milestone for the bank as it completed "two critically important planks" of its strategy to offload unwanted businesses.
The banking giant said it had driven down its majority shareholding in Barclays Africa Group to the extent where it can now apply for regulatory deconsolidation.
Barclays expects to complete this process next year.
It has also run down its non-core unit ahead of schedule to below £25 billion in risk-weighted assets, meaning it could close the operation six months early.
Mr Staley added: "Accomplishing both of these milestones marks an end to the restructuring of the Barclays Group, and brings forward the date when our shareholders can benefit from the full earnings power of this business.
"That power is evident once again in the performance reported today."
However, factoring in a £1.4 billion loss on the sale of 33.7% of Barclays Africa Group and a further £1.1 billion charge linked to the disposal, the bank recorded an attributable loss of £1.2 billion for the half-year.
This was down from a £1.1 billion profit over the same period in 2016.
The results come after a testing first half for Mr Staley, who is facing a regulatory investigation into his conduct after he attempted to identify a whistleblower.
Seperately, Barclays former chief executive and three top bankers have been charged with conspiracy to commit fraud over a June 2008 investor cash-call.
The group, ex-boss John Varley, Roger Jenkins, Thomas Kalaris and Richard Boath, will all stand trial in 2019 over alleged side deals struck at the height of the financial crisis.
Looking forward, the bank said it expects to boost its performance over the next two years thanks to a £1 billion drop in costs.
Group finance director Tushar Morzaria said the savings would be made “by not having to do much at all”, as restructuring costs fade and it finishes spending money on setting up the ring-fenced bank.
Mr Staley added that the bank was still “open for business” despite the Bank of England flagging the potential risks to the UK economy from a rapid rise in consumer credit.
He said Barclays was more uneasy about a recent dip in consumer confidence rather than lending levels, adding that the “impairment numbers we are seeing are not a concern at this point”.
He went on: “There are signs that are telling us to be cautious, but we don’t see things actually in the numbers that would raise any great concern.
“We are still very constructively engaged with the UK consumer and extending credit, and we hope the UK economy continues to move forward.”
On Brexit, Mr Staley said he had taken part in a meeting with Brexit Secretary David Davis and felt the Government was “reaching out to the business community”.
He said: “The Brexit negotiations are going to be very complex and we are going to be living with uncertainty for at least the next couple of years.
“Given that uncertainty, I think a lot of companies and businesses around the United Kingdom will have to start contingency plans early”.
Barclays is bulking up its operation in Dublin to help counter any Brexit disruption, with the lender understood to be adding an extra 150 staff.
Mr Staley would not comment on the whistleblowing investigation, but noted that the board and the shareholders had been “very supportive”.
Shares in Barclays were down after the results were announced, before swinging back into positive territory later in the morning to rise by 0.5%.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said it was a “perplexing set of results” from the lender, with the bad bank getting better and the good bank getting worse.
He said: “The sale of Barclays Africa and more PPI costs are the main culprits for the bank’s woes so far in 2017.
“More litigation problems are waiting in the wings, with the bank in trouble with the FCA, the SFO and the US Department of Justice – a formidable triumvirate of adversaries.
“The bank’s pension black hole has more than doubled in size since the last funding valuation, thanks to falling government bond yields.
“That’s going to cost the bank an extra £4.5 billion, spread over the next 10 years.
“However, in the madcap world of valuing pension liabilities, it’s entirely possible that the deficit may fall by the time the next valuation comes round in 2019, if interest rates have risen by then.
“The market will be hoping for a bit more positive news in the remainder of the year, though conduct issues may well overshadow the bank’s performance.”
Joe Giddens/PA Wire