FTSE 100: Barclays profits slump as US trading error bites

·4 min read
Barclays reported a pre-tax profit of £3.7bn in the first six months of 2022 Photo: David Cliff/NurPhoto via Getty
Barclays reported a pre-tax profit of £3.7bn in the first six months of 2022 Photo: David Cliff/NurPhoto via Getty

Barclays (BARC.L) profits slumped 24% in the first half after a costly trading error in the US and a charge to cover loan losses during the cost of living crisis hit the lender's books.

The FTSE 100 (^FTSE) bank reported a pre-tax profit of £3.7bn ($4.5bn) in the six months to 30 June. That was down from £4.9bn a year ago. Analysts expected Barclays to report a pre-tax profit of £3.9bn

Thursday’s results were marred by a £1.3bn charge in the half to cover the costs of buying back $17.6bn worth of securities it sold in breach of US regulations.

Group income came in at £13.2bn, up 17% year-on-year, including £800m from hedging arrangements related to the over-issuance of securities.

Net interest income jumped 22%, boosted by rising UK interest rates. The bank sees rates reaching 2.5%, up from 1.25% currently, by the year end, Barclays chief financial officer Anna Cross said in a call with media on Thursday.

UK growth is expected to slow, but said it was "difficult to say" if there would be a recession at this stage.

"Our performance in the first half shows the resilience and advantage that diversification at all levels brings, both across the bank and within our businesses," Barclays chief executive officer CS Venkatakrishnan said.

Company shares declined 2.4% on Thursday in London.

Earlier this year Barclays admitted to selling more products to investors in America than it was allowed to, triggering an estimated £450m loss. It overshot a $20.8bn limit agreed with US regulators by $15.2bn.

The British bank also faced regulatory scrutiny for the blunder as some of the structured goods have surged in popularity since Russia's invasion of Ukraine.

On Monday, the lender announced it would start to buy back as much as $17.6bn of the over-sold securities from 1 August and will expire on 12 September.

At its quarterly results in April, Barclays had to delay a promised £1bn stock buyback following a jump in litigation, resuming them a month later, with the programme running until the end of September.

It put aside £165m for a potential fine for the error, and £341m for potential loan losses as the economic outlook has weakened due to soaring inflation.

Venkatakrishnan told reporters he commissioned a council-led external review of the trading blunder, which will "report to the board soon", adding they will "carefully" consider all the findings and take "appropriate action".

The group flagged rising operating costs due to the effects of a strengthening dollar and trading error, forecasting total operating expenses to be around £16.7bn versus previous outlook of £15bn.

"We are alert to the pressure that the rising cost of living will have on our customers and colleagues," Venkatakrishnan added. "We have a range of measures in place to help and are looking to do more."

Read more: Lloyds profits dip as it sets aside £377m to cover loan defaults

Despite the rise in litigation charge and conduct, the bank announced it will payout a 2.25p a share dividend and buyback £500m of its stocks.

The bank also stuck with a returns target of more than 10% both for this year and in the medium-term.

The London-based lender said it will pay $200m penalties to US regulators to settle a long-running probe into unapproved messaging channels, such as WhatsApp, being used by staff.

Russ Mould, investment director at AJ Bell, said: “The market is pretty unforgiving of banks at the moment. Investors are wary of their exposure to a weakening economic backdrop, despite any benefit they might be getting from rising interest rates. So the last thing banks can afford is self-inflicted damage of the kind Barclays is enduring.

“For now investors may well be in ‘well I’ll believe it when I see it mode’ and the company can ill-afford any more mistakes in the short term.”

Watch: How does inflation affect interest rates?

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