The Covid-19 pandemic could force Barclays to set aside £4.5bn to cover bad debts this year, as customers struggle to repay their loans in the coronavirus crisis.
The bank made a provision of £2.1bn to cover bad debts in the first quarter, driven by potential losses linked to the pandemic. The extra costs sent profits down by 38% to £913m, a bigger fall than analysts had expected.
Barclays is forecasting a near-8% drop in UK economic growth for the full year, which is expected to result in a surge in loan defaults by both corporate and retail customers. It means Barclays could be forced to put aside up to £4.5bn to cover bad debts due to the outbreak in 2020, a spokesperson for the bank confirmed.
Its chief executive, Jes Staley, said the pandemic’s impact was proving to be far worse than the 2008 financial crisis: “This is unprecedented territory that we’re in, and having lived and been on JPMorgan’s operating committee in the 2008-09 crisis, this is beyond that by some measure.”
Barclays said £1.2bn of the first quarter charge reflected “initial estimates of the impact of the Covid-19 pandemic,” though expected losses were partially offset by stimulus measures announced by government and central banks in the UK and US in recent weeks.
The bank was also affected by a plunge in oil prices because of the dramatic fall in demand during the outbreak, as well as a £400m charge linked to defaults by a single unnamed corporate client.
It is understood that the loss was linked to Finablr – the company that owns the foreign exchange bureau Travelex. Finablr was forced to put itself up for sale after suffering a cyber-attack at the start of the year and was then hit by a drop in demand for foreign exchange services due to Covid-19 travel restrictions.
While Barclays has been waiving charges and fees for customers impacted by the outbreak, the bank’s finance chief, Tushar Morzaria, warned it would start seeing the full effects of the pandemic on results in the second quarter. He said the bank’s consumer business was expected to take a hit, and that the drop in spending levels would also impact income from debit and credit cards.
Lenders such as Barclays have been criticised for how they handled small-business customers seeking government-backed coronavirus business interruption loans scheme (CBILS), by initially asking for personal guarantees or being too slow in approving applications from desperate customers.
Staley admitted that some mistakes were made but said staff were working flat-out on the programme. The bank has so far processed 3,760 CBILS loans worth £737m. The latest industry figures, which will be updated on Thursday, showed UK banks had issued a total 16,624 loans worth £2.8bn.
“It’s never been done before by our customers and clients. It’s never been done before by the government and regulators and the banks, so it’s complex. I’m sure we’ve made mistakes as everybody has as we’ve rolled this out. We’re putting our people under enormous strain, because you can imagine, as requests come, it’s quite desperate,” the chief executive said.
Barclays is the latest bank to reveal the costs linked to the pandemic. On Tuesday, HSBC revealed it could end up setting aside $11bn (£8.8bn) to cover loan losses for 2020, after the pandemic hit its main markets across Asia and Europe. Standard Chartered also revealed a $962m (£776m) loan loss charge on Wednesday that pushed first-quarter pre-tax profits down 29% to $886m.
Staley said: “Despite all the challenges we face as a consequence of Covid-19, I am confident Barclays will emerge from this pandemic well placed to continue to serve our customers and clients, the communities and economies in which we operate, and our shareholders.”
Barclays did not provide an update on a UK regulatory investigation into Staley, which centres on whether he was transparent enough over his relationship with the sex offender and disgraced financier Jeffrey Epstein.