Barclays profit drops as bad debts surge in crisis

Barclays profit fell by more than a third in the first quarter as the bank set aside £2.1bn for bad debts during the Covid-19 crisis.

Pretax profit for the three months to the end of March dropped 38% to £913m as revenue rose 20% to £6.3bn. The charge for impaired loans increased to £2.1bn from £448m a year earlier.

Barclays said it expected a tough year, particularly at its UK retail business where low interest rates will cost about £250m and a regulatory clampdown on fees and overdrafts will cost £150m. The UK business's profit fell to £0.2bn from £0.6bn as margins were squeezed and fees were removed. The bad debt charge increased to £0.5bn from £0.2bn based on expected losses due to Covid-19.

Profit at Barclays' international business, which includes its investment bank, fell to £0.8bn from £1.1bn. Income at the investment bank rose 44% to £3.6bn driven by record markets revenue of £2.4bn as clients traded amid market turmoil. Credit impairment charges jumped to £1.6bn from £245m because of single name wholesale loan charges and Covid-19.

Jes Staley, Barclays' chief executive, said: "The impact of Covid-19 came late in what was until that point a good quarter. We have taken a £2.1bn credit impairment charge which reflects our initial estimates of the impact of the Covid-19 pandemic.

"Given the uncertainty around the developing economic downturn and low interest rate environment, 2020 is expected to be challenging. The strength of Barclays lies in our diversification by business, geography and currency, which allows us to remain resilient through the developing economic downturn."

Barclays shares roses 7.6% to 105.10p at 11:07 BST.

Staley's statement appears to be in part a riposte to Edward Bramson, the activist investor who has been agitating for Barclays to strip back or scrap its investment bank, which he says absorbs too much capital. Barclays has always argued being a universal bank allows it to ride out tough times.

Nicholas Hyett, an equities analyst at Hargreaves Lansdown, said: "Barclays’ results are a good demonstration of why tying high street and investment banking together can pay dividends. Volatile financial markets are generally good for banks’ trading businesses. That’s provided a useful boost to profits just as allowances for bad loans increase – helping to keep profits and capital on a fairly even keel.

"There are still plenty of challenges ahead. The short term increase in demand for borrowing could dry up if the economy slows dramatically in the months ahead and that would also come with a spike in bad loans and reduced activity in the investment bank."

Barclays' common equity tier 1 capital ratio shrank to 13.1% from 13.8% at the end of December. The ratio was squeezed partly by a £30.5bn increase in risk weighted assets as corporate customers drew on credit facilities in the crisis. The bank's capital ratio is above its 11.5% minimum regulatory hurdle.

Barclays scrapped dividends for 2020 in late March under pressure from the Bank of England and agreed not to buy back shares. Both actions were designed to conserve capital so that banks could lend to support the wider economy during the Covid-19 crisis.