Barclays reveals extra charge for motor finance redress
Barclays has revealed lower earnings after saying it was setting aside an extra £235m to cover the cost of compensating historic car loan customers.
The banking group also revealed it suffered a £110m hit linked to the collapse of US subprime lender Tricolor, as its boss stressed it was reviewing its loan book amid concerns about the private credit market. Barclays made a pre-tax profit of £2.1bn for the third quarter, between July and September, down 7 per cent on the prior year. This took into account the impact of it needing a higher provision for the motor finance issue.
Having reviewed the Financial Conduct Authority’s (FCA) proposed redress scheme, Barclays said it did not think its previous £90m reserve would be enough to cover the costs. The additional £235m brings the group’s total provision to £325m, which it said reflected a reasonable estimate of the cost of compensation.
However, like other lenders including Lloyds, Barclays challenged the regulator’s proposals, saying it did not think the conditions “accurately address actual loss (if any) suffered by customers and do not achieve a proportionate or appropriate outcome”.
The bank said its pre-tax profit rose by 4 per cent year-on-year excluding the impact of the car finance provision. It reported a 16 per cent jump in income across its UK bank over recent months after acquiring Tesco Bank last year. Its corporate and investment banking divisions were also boosted, while income from its consumer bank in the US soared by 19 per cent in the third quarter. Meanwhile, Barclays told investors it took a £600m credit impairment charge for the third quarter, including a roughly £110m “single name” charge.
Analysts linked this to US subprime auto lender Tricolor which collapsed last month amid allegations of fraud, at a similar time to car parts supplier First Brands.
The failures, along with some regional banks in the US revealing issues with bad and fraudulent loans, have helped raise concerns about the broader private credit market.
CS Venkatakrishnan, Barclays’ group chief executive, said the exposure to Tricolor was “obviously not a surprise – the surprise was the fraud”.
“We take our credit risk management very seriously at all points in the cycle, and credit lending has to be prepared for all outcomes, including fraud,” he said.
“So, we’re looking at the lessons we learned from this – is this a single bad actor, is it more than that, and what warnings might there have been?”
Mr Venkatakrishnan said the bank was being “vigilant” about checking the credit quality of its lending portfolio. The chief executive also said that Barclays had been approached by First Brands in the US but “declined” to offer a loan, meaning it had no exposure to the business. The remarks come after the Governor of the Bank of England, Andrew Bailey, said that the central bank must take the collapse of the two firms “very seriously” because of what they could signal about the private finance sector.