Barclays profits fuel row over charges
Barclays fuelled the ongoing row over UK bank charges today after it said its annual profits surged 35% to £7.14bn (€10.6bn) in 2006.
The latest haul from the banking giant comes amid industry-wide anger over overdraft charges and the possibility of an end to free retail banking.
At the start of the banking results season, when the top-five firms are expected to rack up combined record profits of more than £38bn (€56bn), the new boss of building society Nationwide shocked consumer groups by commenting that fee-based banking appeared to be a “fairer proposition”.
Nationwide’s incoming chief executive Graham Beale said that compulsory monthly fees would properly reflect current account costs.
The comments sparked anger among consumer groups who already claim that banks rake in significant profits at the expense of customers, charge excessive fees for overdrafts and credit cards and offer poor service standards.
An investigation last year by the Office of Fair Trading (OFT) found that customers were being charged more than £300 million a year in unlawful penalties on credit cards.
The OFT warned that any penalty charge of more than £12 (€18) was unfair, leading to a number of high street banks cutting their fees.
In terms of personal accounts, Barclays currently charges £30 (€44.50) a day – up to a maximum of £90 (€133) – for an item that results in an account being overdrawn without an agreed limit. It charges £35 (€52) for a bounced cheque.
Barclays group chief executive John Varley remained tight-lipped on how much of the group’s profits came from charges and interest rates levied on unauthorised overdrafts, saying only that the firm would not “drill down into each component of the income line”.
Consumer watchdog Which? Has estimated that UK banks made £4.7bn (€7bn) billion in profits last year from these fees and interest rates on unauthorised overdrafts - just under 10% of the combined profits from the “big five” banks.
Mr Varley said the cost of retail banking products in the UK was among the lowest in the world and the country’s financial services products offered “value for money”.
He said earlier that the end of free banking was “unlikely”, pledging to protect Barclays’ no-fee retail banking policy in the UK.
Barclays also pointed out the majority of its £7 billion profits came from operations outside of core high street banking.
The group’s UK retail banking arm saw pre-tax profits rise by 17% last year, to £1.21bn (€1.79bn).
Investment businesses Barclays Capital and Barclays Global Investors helped offset declining profitability at Barclaycard, with Barclays Capital alone seeing a 55% hike in pre-tax profits to £2.22bn (€3.29bn) last year.
Consumer groups have launched stinging attacks on the banking sector in light of predictions over the full extent of their earnings over the past year.
The Consumer Action Group and campaigner Martin Lewis, of moneysavingexpert.com, said firms were making excessive profits by levying unfair charges on customers, while service standards also came under fire from the National Consumer Council.
But British Bankers’ Association spokesman Brian Capon argued the profits seen by banks were good for the country.
He said: “Everyone has a vested interest in banks doing well – pension funds invest heavily in bank shares so anyone with a pension will benefit from banks improving their profits.”
Mr Capon added: “The majority of bank profits come from wholesale and international operations. Most people get free banking and all they have to do is to keep in credit.”
