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Barclays profits down 7% as PPI and litigation costs mount

Barclays profits down 7% as PPI and litigation costs mount

Barclays saw adjusted pre-tax profit tumble 7% to £3.3 billion over the first half, hit with falling investment bank profits and a £900 million provision for PPI redress .

The bank noted £211 million in litigation and conduct charges over the period, up 67% year-on-year.

Statutory pre-tax profit at £2.5 billion was up from £1.7 billion over the corresponding period last year. Barclays said not having to pay out money for interest rate hedging products redress had helped, compared to the prior year, where it spent £650 million.

Costs associated with Barclays’ Transform project, post the Libor-rigging scandal and CEO Bob Diamond’s departure, came in at £494 million over the period, down from £640 million the previous year.

The bank noted the New York Attorney General's lawsuit which alleges that certain annual and other reports of Barclays contained mis-statements and omissions concerning LX Liquidity Cross. The complaint relates to all persons or entities that purchased Barclays-issued American Depositary Shares (ADSs), and options contracts to purchase or sell the ADSs between 2 August 2011 and 25 June 2014.

As the complaints seek unspecified monetary damages and injunctive relief, Barclays said it was not practicable to provide an estimate of the financial impact of these matters.

Adjusted group return on average shareholders' equity fell to 6.5%, down from 7.8% the previous year, partially reflecting the rights issue in the fourth quarter of 2013.

Personal and Corporate Banking, which is now home to Barclays’ Wealth & Investment Management division, incurred £115 million of costs to associated with project Transform, up from £92 million the previous year.

‘Operational efficiency has been enhanced through ongoing rationalisation to focus on target markets and simplify operations, with continued investment in the customer experience across multiple channels,’ the group noted.

Within the division, total income rose 1% to £4.4 billion, driven by strong savings and mortgage growth although this was partially offset by lower fees.

Ashok Vaswani, head of Personal and Corporate Banking (PCB), commented: 'The Wealth and Investment Management business has made great progress on its transformation journey and its contribution to PCB’s half year results reinforces the positive impact the strategy is having on its profitability and sustainability. 

'The underlying business remains robust and well positioned for the future and it continues to secure significant new clients in target markets around the world.'

Fines and litigation

The bank also reiterated its intention to contest findings by the Financial Conduct Authority (FCA) regarding wrongdoing in its relationship with Qatar Holdings in June and November 2008. The FCA has imposed a £50 million and it alleges the bank breached their disclosure obligations in connection with two advisory services agreements.

Barclays noted that the Serious Fraud Office is also investigating these agreements, while the US Department of Justice (DOJ) and US Securities and Exchange Commission are investigating whether the group's relationships with third parties who help it to win or retain business are compliant with the US Foreign Corrupt Practices Act.

In August 2013, the DOJ and the Swiss Federal Department of Finance announced the programme for Non-Prosecution Agreements or Non-Targeted letters for Swiss Banks, an agreement that was the consequence of a long-running dispute between the US and Switzerland regarding tax obligations of US related accounts held in Swiss banks.

Barclays Bank (Suisse) and Barclays Bank Geneva Branch were participating in the programme; however following a structured review of the bank's US related accounts, it was determined that continued participation in the programme was not warranted.

At 9:20 shares were up 3%, trading at 226.5 pence.

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