Barclays profits tumble eight per cent as lender sets aside £500m for loan defaults

Barclays performed worse than expected in the final quarter of 2022 as higher expenses and an increase in bad loan provisions weighed on performance. 

In the fourth quarter operating expenses increased to £4.0bn, £200m more than analysts predicted. 

The bank also set aside £498m in impairment costs in case of bad loans. This compared to a release of £31m the year before.

Increasing costs meant that profit in the period was eight per cent lower than last year despite an £800m increase in quarterly revenue. 

Barclays UK recorded a 30 per cent increase in profit compared to last year, boosted by higher interest rates. Net interest income in the period was 22 per cent higher than last year. 

After a decade of ultra-low interest rates, sharp hikes throughout 2022 have widened banks’ net interest margins – the difference between what banks pay out and receive in interest payments.

Barclays’ investment banking division also brought in two per cent less revenue in the fourth quarter than last year.

The division was boosted by a strong performance from fixed income, which brought in 79 per cent more income than last year which mostly offset the 50 per cent fall in investment banking fees. 

Barclays is the one of the few major UK bank to maintain a large investment banking division. Analysts have suggested investors are more wary of Barclays, compared to less diversified lenders like Lloyds and Natwest, leading to Barclays’ share price significantly lagging its domestic rivals. 

The bank’s full year profit figures were 14 per cent lower than last year, largely as a result of hefty litigation costs, including a $361m fine from the SEC for a clerical trading error. In the fourth quarter however, litigation costs were actually lower than last year. 

Barclays have struggled with compliance issues over the past few years after the Libor trading scandal and ex-CEO Jes Staley’s connections to convicted sex offender Jeffrey Epstein. 

Just last week the Financial Times reported that they were under investigation from the FCA for persistent failures on anti-money laundering.