Barclays profits fall 14% on bad debt charges, over-issuance error

Barclays Bank said annual profits fell 14%, driven by poor performance at its investment unit, a rise in debt impairment provisions and the costs of a massive trading error in the US.

The bank posted a pre-tax profit of £7bn in 2022, down from £8.2bn a year earlier and missing estimates of £7.2bn. Credit impairment charges were £1.22bn against a net release of £653m, reflecting “macroeconomic deterioration and a gradual increase in delinquencies”.

Barclays also announced a £500m share buyback and lifted the full-year dividend to 7.25p a share from 6p. The disappointing results hit the shares, which were down 10% at one stage, dragging rivals NatWest and Lloyds with them.

Group operating expenses were £16.7bn, reflecting £1.6bn of litigation and conduct charges, primarily driven by a mistake by the bank in the US when it offered and sold almost $18bn of securities in unregistered transactions after it lost its status as a "well-known seasoned issuer" in 2017.

Last September the bank and an affiliate agreed to pay $361m to settle US Securities and Exchange Commission charges.

Returns on equity at Barclays' international division fell to 10.2% from 14.4% a year earlier on lower fee income as the global economic situation became more volatile and fewer deals were done.

Looking ahead, the bank said diversified income streams "continue to position the group well for the current economic and market environment including higher interest rates".

Net interest margin in the UK, the difference between a bank's loan and savings interest rates, increased to 2.86% from 2.52%. Barclays targeted a 2023 NIM of more than 3.20%.

“Barclays has bitterly disappointed the market with its full year numbers. Profits have been stunted partly because of a big increase in litigation costs relating to the over-issuance of US securities," said Hargreaves Lansdown analyst Sophie Lund-Yates.

"This costly mistake has been known about for some time, but these are now the hard consequences biting the bottom line. The wider-reaching difficulties come from reputational damage. The tolerance margin for a similar mistake is now very thin."

"The challenges don’t stop there. Barclays has a sizeable investment banking business, which is being hit by lower fees, due to a natural fall out from tough market conditions."

"Over the longer term Barclays’ diverse income streams set it apart from others, and the structural changes to interest rates should benefit the bank for some time. In the shorter-term the market needs more convincing that it’s on the right track, and concerns haven’t been allayed by the new £500m share buyback."

"Given the group’s capital position, there’s definitely an argument that more money could be funnelled back to shareholders.”

Reporting by Frank Prenesti for Sharecast.com