Barclays has profits shocker as Funding for Lending grows

The fines and regulatory admonishments of the last year have hit Barclays hard enough, but now its own restructuring has shaved profits by 25%.

by Michael Northcott
Last Updated: 19 Aug 2013

Banks are spending so much money on fines and assorted regulatory admonishments at the moment that they could really do without haemorrhaging any extra money internally. But alas, for Barclays, this has been unavoidable. The bank has seen its Q1 profits reduced by 25% to £1.8bn thanks to internal restructuring and some cheesy rebranding. Profits in the same period last year were £2.4bn.

So what exactly has cost all the money? Well, the bank has had to take a charge of over £514m to implement 3,700 job cuts, cut the investment banking arm down and also vague intimations about fixing the banks culture in the wake of a series of mis-selling and regulatory scandals. Chief executive Antony Jenkins said: ‘In our goal to become the 'go-to' bank we have not chosen an easy path for Barclays, but we have chosen the right one.’ 

It is worth noting however that some individual parts of the business did actually perform well in the period. If you isolate investment banking activities, they achieved an 11% rise in profit to £1.32bn, and Barclays credit impairment charges (which are the provisions banks make for bad loans in a fixed period of time) fell 10% to £706m.

Other improvements Jenkins has pursued (on order to make the bank look a bit friendlier to the public and politicians) include the closure of its tax-planning unit. This was a business aimed at helping wealthy clients arrange their taxes in clever ways. You know what we’re talking about. And, of course, a restructuring of senior executives has helped: last week Rich Ricci resigned as head of corporate and investment banking. He was originally one of former CEO Bob Diamond's henchmen and seen as an example of the worst excesses of the greed of bankers.

Elsewhere in banking (as though there hasn’t been enough news from that sector this morning), the government’s Funding for Lending scheme was extended by a year to 2015 today. The Bank of England announced that better incentives will be given to banks to dole out some money to SMEs. 

The scheme makes central bank cash available to banks on generous interest terms as long as they lend some of it out. The new incentives mean that where banks could borrow an extra £5 from the FLS for every £1 they lend to SMEs, they will be able to borrow £10 in 2014, when the scheme is extended, for every £1 they lend in 2013. Sounds clunky and like it needs some paperwork, but essentially the aim is to get them lending a bit faster – so far the government has been criticised because lending to SMEs has remained slow.

But against a backdrop of collapsing bank deals, fines and plummeting profits, you can bet your bottom dollar that lending isn’t going to soar away any time soon…

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