Barclays raises provisions to cover legal costs for scandals

Barclays has set aside a total of £1.25bn for provisions to cover litigation costs related to ongoing probes into mis-selling PPI and rigging foreign exchange rates.

The bank announced a fresh £750m provision to cover any costs in settling with regulators following a probe into foreign exchange rate rigging. That is in addition to the £500m it has already set aside for other litigation, competition and regulatory matters.

Barclays was recently named as one of the 10 banks involved in price-fixing precious metals trading by US and UK regulators who are reportedly launching investigations. Barclays also made a fresh £200m provision to cover pay-outs for mis-sold payment protection insurance (PPI) in the last quarter of 2014.

Antony Jenkins, chief executive of Barclays, said the bank remains focused on addressing outstanding conduct issues, including those relating to FX trading. “I regard the behaviour at the centre of these investigations as wholly incompatible with our values, and I share the frustration of colleagues and shareholders that matters like these continue to cast a shadow over our business. But, resolving these issues is an important part of our plan for Barclays and, although it may be difficult, I expect that we will make significant progress in this area in 2015,” he said.

Overall, the bank reported a reported a pre-tax loss of £532m for the fourth quarter, however for the full year, reported that group adjusted profit before tax increased 12% to £5.5bn with core profit before tax increasing 3% to £6.68bn on the back of cost saving initiatives which included a 5% net reduction in headcount of staff.

The bank also raised its capital ratio buffers to 10.3% last year compared to 9.1% in 2013, taking in account the increase in provisions and a loss on the announced sale of its Spanish business of £446m in the second half of 2014. Barclays added that an accumulated currency translation reserve losses of approximately £100m will be recognised on completion of the Spanish disposal in the first quarter of 2015.

Within the Core business, Personal & Corporate Banking (PCB) and Barclaycard continued to grow profits, while Africa Banking reported improved constant currency and the group’s Investment Bank made further progress on its strategic repositioning while driving cost savings and risk weighted assets efficiencies, despite challenging market conditions affecting income.

The bank declared a final dividend for 2014 of 3.5p per share to be paid on in April 2015, resulting in a total 6.5p dividend per share for the year.

“Although there remains uncertainty in the global macroeconomic environment, which is expected to persist through the year, we believe there will be greater clarity on regulatory requirements and several conduct issues during 2015. Our priority is to continue strengthening the capital position of the group,” added Jenkins.

Atif Latif, broker at Guardian Stockbrokers said that on the whole, headline earnings are positive and that he is pleased to see management are continuing to deliver on promises to cut costs however “we are slightly concerned by the increase in PPI and FX trading provisions”.

Bernstein, noted that the Barclays' "deleveraging has been strong but it has been offset by weakness in income. The cost plan laid out by management is credible. Accordingly, we rate the stock as market perform (the equivalent of neutral or hold) with a price target of 240p."