Barclays takes PPI hit

The bank has now set aside £1.3bn to deal with PPI compensation after a recent increase in the number of claims, which have eaten into the profits of its UK arm.

However, stripping out the cost of PPI and other one-off costs, the bank reported a 22 per cent rise in pre-tax profits to £2.4bn - against City expectations of around £2bn - as the UK’s retail banking division and Barclaycard performed well.

Barclays chief executive Bob Diamond has been in the spotlight recently over his £17.7m pay package for 2011, which is expected to come under increased scrutiny at the bank’s annual meeting tomorrow despite recent moves to quell a shareholder rebellion.

Santander UK also released its first quarter results, which showed pre-tax profits falling 40 per cent to £347m amid a challenging economic environment, low interest rates and higher funding costs.

Barclays reported a five per cent increase in total group income to £8.1bn, which included a three per cent rise in income at its investment bank Barclays Capital.

UK retail banking - all business directly with consumers such as current accounts - saw underlying pre-tax profits rise 16 per cent to £334m.

Barclays said it issued gross new lending of £10.1bn to households and business, which was flat on the previous year.

The bank also raised £1.5bn of loans under the Government’s National Loan Guarantee Scheme - the so-called credit easing initiative designed to reduce the cost of credit for small businesses.

The group held its quarterly dividend at 1p a share.

The hit from bad debts was reduced by 16 per cent to £778m in the quarter, while it also cut its exposure to troubled eurozone countries Portugal, Ireland, Italy, Greece and Spain by 16 per cent to £6bn.

Barclays made no reference to the furore surrounding Mr Diamond’s pay, which has been brewing in recent weeks, in its first quarter update.

Last week, Mr Diamond agreed not to receive half of his £2.7m all-shares bonus award for 2011 if certain performance targets are not met within three years.