Barclays will spend £1bn (€1.38bn) to shield its UK retail customers from riskier areas of the business, it said yesterday, prompting the lender to increase its costs guidance for next year and cut its returns target.
The British bank also set aside £290m to compensate customers mis-sold foreign exchange products as it reported a 10% drop in quarterly profit.
Barclays detailed for the first time the expected costs associated with the so-called ring-fencing of its UK retail bank, required by law to be in place by 2019, and the setting up of a holding company for its US investment bank by mid-2016.
It will spend about £400m next year to implement those structural changes, having spent £100m this year.
As a result, guidance for core costs next year was raised to £14.9bn from £14.5bn.
It also cut the target for 2016 return on equity in its core business to 11% from 12%.
Barclays said it will spend about £500m more on its British ring-fencing in 2017 and 2018.
The bank, which announced this week that former JP Morgan investment bank boss Jes Staley will become its new chief executive in December, also warned that its investment bank had experienced weaker market conditions in October than a year earlier.
Conduct and litigation costs that have weighed on the bank in recent years continued as it set aside cash for the first time to compensate UK foreign exchange customers after an internal review of rates given on transactions between 2005 and 2012.
“We didn’t apply the most appropriate foreign exchange rate and are looking to make that good,” finance director Tushar Morzaria said.
“We believe the provision we’ve taken to be prudent and sufficient to work through all the issues that we’ve identified, but of course that work’s ongoing,” Morzaria added, declining to elaborate.
The bank also made a £270m provision relating to settlement of litigation over US mortgages that was announced this month.
Barclays reported adjusted pre-tax profit of £1.43bn for the three months to September 30, down from £1.59bn a year ago.
Its common equity capital ratio, a core measure of a bank’s financial strength, was 11.1% at the end of September, unchanged from three months earlier.
That was weaker than analysts expected and some said that it showed that the bank may have to seek a capital increase.
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