Profits for the six months to the end of June fell by more than expected after the bank revealed a £1.5bn estimated cost impact from the debacle in its structured products division.
Barclays also said it put aside £165 million for a potential fine for the error, which saw it sell more structured notes than it was allowed to under US rules, and is being scrutinised by regulators. It said the impact of the trading mistake was softened by a £758m gain made on a hedge placed by Barclays against losses arising from the error.
This meant that, net of tax, the bottom-line charge relating to the US trading saga stood at £581m, of which £341m was taken in the second quarter.
The lender, which last year opened its new Glasgow campus, also revealed it put by £341m for potential loan losses as the economic outlook has weakened due to soaring inflation.
The group warned that its annual costs are set to rise to around £16.7bn, up from previous guidance for £15bn, as a result of the US structured notes error and a weaker pound against the US dollar.
In spite of the charges, Barclays said it will pay out a dividend of 2.5p per share and launch a buyback of up to £500m.
The half-year figures showed its UK arm was boosted by rising interest rates, although this was offset by cash set aside for future bad debts and a competitive mortgage market, with half-year pre-tax profit before tax coming in at £1.2bn, down from £1.5bn a year ago.
Barclays expects UK growth to slow, but said it was “difficult to say” if there would be a recession at this stage. It expects UK interest rates to reach 2.5 per cent, up from 1.25 per cent currently, by the year end.
John Moore, senior investment manager at wealth firm Brewin Dolphin, said: “Despite a fall in headline profits, Barclays has followed Lloyds with a strong overall set of results. However, litigation costs continue to be an issue for the bank and are becoming a familiar theme for quarterly updates.
“The credit card division is likely to be the most affected by any downturn in the economy, but there are some assurances around its preparedness, while its net interest margin will be helped by rising interest rates in the UK.”
Richard Hunter, head of markets at Interactive Investor, noted: “Over-issuance of securities in the US and a further impairment provision have conspired to mar the overall numbers.
“In terms of consumer behaviour, the credit card business also suffered from reduced borrowing and higher customer repayments, while overall costs remain on an upward trajectory given a tightening backdrop and continued investment in the business.”
Barclays’ results came a day after Bank of Scotland parent Lloyds Banking said it was seeing increasing signs that customers are battening down the hatches.