Barclays £1bn ‘ring-fencing’ bill impact jolts City

Barclays will spend £1 billion to shield its high street customers from riskier parts of the business, the bank revealed yesterday, alongside a major new provision for customers mis-sold foreign exchange products.
The spending includes four hundred million next year. Picture: PAThe spending includes four hundred million next year. Picture: PA
The spending includes four hundred million next year. Picture: PA

It was the first time Barclays had detailed the anticipated costs of the ring-fencing of its UK retail arm from its investment bank, saying it will spend £400 million next year.

This includes setting up a holding company for the largely US-based investment bank by mid-2016, ahead of the firewalls between retail and so-called “casino banking” demanded by the UK authorities by 2019.

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The amount is in addition to the £100m Barclays spent on ring-fencing so far this year, and a planned further total of £500m on the project over 2017-18.

As a result, guidance for the bank’s core costs next year was raised yesterday to £14.9 bn from £14.5bn, while it also cut its target for 2016 return on equity to 11 per cent from 12 per cent.

The news jolted the City, coming alongside a 10 per cent fall in third-quarter profits at Barclays, and on the stock market the shares shed 6.3 per cent to 237.25p.

Barclays finance director Tushar Morzaria played down the reduced return on equity target, saying: “Eleven per cent isn’t our final resting point, we’ve guided to over 12 per cent and we’re working towards that as quickly and expeditiously as we can.”

It came as Barclays posted an adjusted pre-tax profit for Q3 of £1.43bn, down from £1.59bn a year ago and below the consensus market expectation of £1.65bn.

During the period it set aside £290m to compensate customers after an internal review of rates given on currency transactions between 2005-12.

Morzaria said: “We didn’t apply the most appropriate foreign exchange rate and are looking to make that good.”

The forex provision brought the total amount the bank has set aside for UK customer redress in 2015 to £1.3bn, jumping from £910m a year ago.

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The group’s investment banking arm, BarCap, had a better quarter than most of its big US and European rivals, with revenue up 9 per cent from a year ago.

The results came the day after Barclays confirmed the appointment of Jes Staley as its new chief executive. Having spent three decades at JP Morgan before joining a hedge fund, his appointment is seen as signalling a renewed focus on the investment banking arm.

John McFarlane, the Scots-born chairman of Barclays, said: “As we align Barclays around our three priorities – focus on core segments and markets, generating shareholder value, and instilling a high performance culture with strong ethical values – we now have a forward agenda that has been discussed and agreed with Mr Staley.”

The bank’s adjusted pre-tax profit for the nine months to end‑September rose 5 per cent to £5.2bn, with good growth in private and corporate banking and Barclaycard.