Barclays warns mis-selling bill may top £5.5bn

Barclays bank has taken an extra £2 billion hit to cover mis-selling claims, but warned that the final bill could rise again as it outlined plans to tap investors for £5.8bn.

Barclays is embarking on a transform programme, which will see thousands of jobs cut. Picture: Getty

Publishing its half-year results today, the bank revealed it had set aside an extra £1.35bn to compensate customers who were mis-sold payment protection insurance, along with an additional £650 million for interest rate hedging products, taking its total provisions for both issues to almost £5.5bn.

Investec analyst Ian Gordon said the further £2bn in mis-selling provisions was worse than expected and “reads negatively” for state-backed rivals Lloyds Banking Group and Royal Bank of Scotland, which publish their first-half results on Thursday and Friday respectively.

Barclays’ bill for PPI claims alone now stands at almost £4bn, but the lender said it may have to make further provisions because the flow of fresh claims was not slowing down as quickly as it expected.

The Financial Ombudsman Service said last week that it was receiving about 2,000 new complaints a day about PPI, which accounted for 83 per cent of its caseload in the first quarter of the financial year.

As well as being caught up in the mis-selling scandal, Barclays was fined £290m by UK and US regulators last year for attempting to manipulate Libor, and Richard Hunter, head of equities and Hargreaves Lansdown, said the bank’s road to recovery would be “long and complex”.

Barclays is embarking on a “transform” programme, which will see thousands of jobs cut from its investment banking and European retail operations, but the shake-up cost the bank £640m during the six months to 30 June, pushing adjusted pre-tax profits down 17 per cent to £3.6bn.

In a bid to help plug the £12.8bn hole in its balance sheet, Barclays plans to raise £5.8bn through a heavily discounted rights issue.

The PRA has demanded that big banks hold capital worth 3 per cent of their loans, but Barclays’ so-called “leverage ratio” stood at 2.2 per cent. A spokesman for the PRA said the regulator believes chief executive Antony Jenkins has drawn up a “credible plan” to increase the bank’s leverage ratio to 3 per cent by June 2014 “without cutting back on lending to the real economy”.

Investors will be offered one new share for each four they currently hold at an issue price of 185p – a discount of 40 per cent on Monday’s closing share price and 35 per cent below the theoretical ex-rights price of 285p.

Numis analyst Mike Trippitt said: “I think they’ve done the right thing. Anything else would have been a fudge, they needed to get on and raise equity.”

The offer, which is being underwritten by Bank of America Merrill Lynch, Citi, Credit Suisse and Deutsche Bank, will launch in September.

Jenkins said he was reacting “quickly and decisively” to the PRA’s concerns and insisted the regulator was happy with his plans, which also includes selling £2bn of convertible bonds, and shrinking loans by a further £65bn to £80bn.

He added: “It is early days, and there is a long way to go, but I’m pleased with our progress and confident that we are on track to become the ‘go to’ bank.”