Redress: Barclays allots £1bn more

Ambereen Choudhury and Howard Mustoe London

Barclays would set aside an additional £1 billion (R14bn) to cover mis-selling of payment-protection insurance and other products, the UK’s second-largest bank said yesterday.

The bank would reserve £600 million for payment-protection insurance redress, bringing provisions to compensate customers who were sold the insurance on loans unnecessarily or without their knowledge to £2.6bn, it said.

The bank also increased provisions for interest rate hedging products by £400m as of the end of 2012, bringing the total to £850m, the highest for any UK bank.

Barclays has been under intense scrutiny since it was fined a record £290m last June for attempting to manipulate the London interbank offered rate (Libor) and other benchmark interest rates.

Antony Jenkins, who ran the consumer bank responsible for the loan insurance sales from November 2009 until his promotion to chief executive in August, said this month he would not take a bonus for 2012 after a series of missteps, including the Libor affair.

“This appears to be part of Antony Jenkins’s new approach,” said Simon Willis, an analyst at Daniel Stewart Securities in London.

“It may be partly designed to draw any sting from surprises on results day.”

Barclays will report full-year results on February 12, when Jenkins will update investors on the bank’s strategy.

Barclays shares had risen 1.46 percent to £2.9575 by lunch time in London. The shares have gained 11 percent this year, giving the company a market value of £35.5bn.

Bank of England governor Mervyn King signalled in November that lenders might need to make bigger provisions for future loan losses and the cost of regulatory fines and customer redress. He asked regulators to report back in March on how banks should comply.

The additional payment-protection insurance charges came in the wake of a “higher-than-anticipated response rate to pro-active mailings” in the fourth quarter, Barclays said yesterday. A total of £1.6bn in provisions had been used by the end of last year, it said.

The increase was unlikely to be an attempt to fully account for all possible customer redress, because UK bank accounting rules did not allow for that, said Sandy Chen, an analyst at Cenkos Securities in London. “From our perspective this won’t be a one-off.”

Banks have reserved more than £12bn to cover claims on personal-protection insurance, which was meant to cover payments on credit cards and mortgages in case of illness or unemployment.

Barclays is also being investigated by the UK’s Serious Fraud Office for fees it paid in 2008 to Qatar’s sovereign wealth fund as the lender sought money to avoid a government bailout.

HSBC Holdings, Europe’s largest bank by assets, has earmarked $240m (R2.1bn), while Royal Bank of Scotland has said it would “meaningfully” increase its current £50m provision. Lloyds Banking Group had set aside £90m, it said on Monday.

Barclays might have to pay as much as £2.5bn to compensate customers over interest rate derivatives, Cormac Leech, an analyst at Liberum Capital in London, said on January 31. HSBC and Royal Bank of Scotland would need to earmark between £500m and £1bn.

Lloyds could face claims of between £250m and £500m, Leech said. – Bloomberg