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Barclays - good bank, bad bank

Barclays has reported £837 million of profit before tax in the third quarter, up from £619 million year on year. This takes profit before tax for the year to date to £2.9 billion, down from £3.2 billion in 2015.

The bad bank, what Barclays calls its ‘non-core’ business, continues to hold profits back, but progress continues to be made towards total closure of this unit in 2017.

Barclays has also been hit by a £600 million PPI charge in the third quarter, thanks to the FCA deadline on claims coming in during 2019, rather than 2018 as previously mooted.

Like Lloyds, bad loans are also on the rise. In its core business, credit impairments in the third quarter almost doubled year on year, from £388 million in the third quarter of 2015 to £769 million in the third quarter of 2016.

A large proportion of these impairment charges came from the UK Barclaycard business, though Barclays says this increase is due to a change in its credit modelling approach, and that underlying loan impairment trends are fairly stable.

The pension deficit has also swung from a surplus of £0.8 billion surplus at the end of 2015 to a £1.1 billion deficit as at 30th September 2016.

Laith Khalaf, Senior Analyst, Hargreaves Lansdown:

"Barclays" third quarter results are a bit of a curate’s egg, the top line in its core business is growing, but profits have been pegged back by one-off items. However, in the banking world, those one-off items do have a tendency to recur over and over again.

Like Lloyds, Barclays has been hit by a big PPI charge as a result of the FCA’s decision to call time on complaints in 2019, rather than 2018 as had been expected. Barclays has also seen a pick-up in credit impairments, though some of this comes from a more prudent approach to modelling bad loans.

The bank has also seen a £1.1 billion black hole appear in its pension scheme, through no fault of its own, as falling interest rates have caused its liabilities to balloon. Rising pension deficits have been a theme of this reporting season, and are an inevitable consequence of looser monetary policy.

Barclays continues to pull the old good bank, bad bank routine, though soon it’s going to need to find a different tack, because the bad bank is being consigned to the history books. Barclays expect to close this side of the business next year, which will be a big step for the bank, and will allow it to fully focus on its core activities.

Barclays still has work to do, but there’s an increasing amount of light at the end of the tunnel. However despite the bank’s international exposure, it is still vulnerable to poor economic conditions in the UK, so if we do get a Brexit-induced slowdown, Barclays will feel the burn."


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