Barclays’ profits hit by extra £300 million PPI bill

Barclays’ pre-tax profits fell £475 million in the first quarter of this year, partly because of an unexpected additional £300 million PPI bill.

The banking giant (BARC.L) had originally put aside £1 billion to cover the cost of paying compensation to customers who had been mis-sold the controversial insurance policy, but said an increase in claims in the past couple of months meant the bank had to increase its provision accordingly.

This puts Barclays’ total payment protection insurance (PPI) bill at £1.3 billion – with banks expected to pay out more than £6 billion in total.

Barclays' main explanation for the dip in profits, which compare with a £1.65 billion profit in the same period last year, however, was a ‘£2,620 million credit reversal’ – an accounting measure which shows the impact on Barclays’ profits if it had to buy back all of its debt now.

Barclays’ adjusted profit before tax – which ignores the additional PPI provision and accounting measure – increased 22% to £2.445 billion, which the bank said was driven by strong performances in both retail and business banking and corporate and investment banking.  

Bob Diamond, chief executive of Barclays, said the first-quarter results were ‘an encouraging start to the year’, but he stressed that the banking environment remains unpredictable.

Looking forward, Barclays said: ‘The continued challenging market conditions mean it is too early to establish trend for the year’.

Barclays' credit card business, Barclaycard, meanwhile, reported a strong first quarter, with profits up 18% to £349 million from £296 million in the same quarter in 2011.

Barclays' share price was up 0.94% or 2p, to 213p after the results.