Loan losses overshadow Barclays trading surge

Loan losses overshadow Barclays trading surge
Barclays has warned of a grim outlook as banks worldwide set aside billions to cover potential bad loans in the wake of the coronavirus pandemic. (AFP)
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Updated 30 July 2020

Loan losses overshadow Barclays trading surge

Loan losses overshadow Barclays trading surge
  • Barclays has made provisions of £3.7bn for the half-year

LONDON: Barclays set aside a higher than expected £1.6 billion ($2.1 billion) to cover a possible rise in loan losses in the second quarter and warned that a grim outlook and low interest rates would hurt profits into 2021.

The COVID-19 pandemic has forced banks globally to set aside billions to cover bad loans, and the British bank’s consumer business is under pressure from lower interest rates, smaller credit card balances and personal loan repayment holidays.

Barclays booked pre-tax profit for the first half of the year of £1.3 billion, down from £3 billion a year ago as provisions against potential bad debts outweighed improved revenues from its investment bank.

The bank’s shares were down 3.5 percent in early trade.

Barclays’ trading performance was a bright spot as virus-induced market volatility prompted a 60 percent jump in trading revenues in foreign-exchange, rates and credit trading.

Overall, the markets division posted a 49 percent rise in revenue to £2.1 billion, an endorsement of the strategy adopted by CEO Jes Staley, who has championed the investment banking business, contrary to the wishes of activist investor and top shareholder Edward Bramson, who wants to shrink the sector as part of a program to slash costs.

Barclays was expected to report credit impairment charges and loan loss provisions of £1.42 billion for the April-June period, according to an average of analyst forecasts.

That increase takes total provisions to £3.7 billion for the half-year and analysts predict that sum to rise to £5.79 billion for the full year.

Barclays said impairments in the second half of the year were unlikely to reach levels seen in the January-June period.

The bank also said it would see short-term pressure on efforts to keep costs low, as it spends on various pandemic- related initiatives.

Barclays’ capital ratio came in at 14.2 percent, up from 13.1 percent at the end of March as recent regulatory changes boosted its reserves. Barclays flagged the capital boost earlier this month.

However, the bank warned its capital buffer could come under pressure in the second half of the year.