Shares of Barclays tumbled nearly 10% Wednesday after the British bank reported a sharp drop in profit, driven by increased provisions for bad debts and huge fines for wrongly sold securities in the United States.
(BCS) reported a net profit of £5.97 billion ($7.2 billion) for 2022, a 15% decline on the previous year. Shares were down 9.8% in late morning trade in London, before paring losses in the afternoon.
The bank said its earnings were affected by a £1.2 billion ($1.4 billion) credit impairment charge — money set aside to cover expected losses on loans — “reflecting macroeconomic deterioration.” Operating costs jumped 14% to £16.7 billion ($20 billion), on the back of an enormous increase in litigation costs and fines, which amounted to £1.6 billion ($1.9 billion).
The increase was primarily driven by a widely reported administrative error that resulted in the bank selling $17.7 billion worth of securities in the United States that had not been registered for sale with the US Securities and Exchange Commission (SEC).
Barclays agreed to pay $361 million to settle the charges from the SEC, according to a statement last year, and about $450 million to compensate investors.
“Barclays has bitterly disappointed the market with its full-year numbers,” Sophie Lund-Yates, lead equity analyst at asset manager Hargreaves Lansdown, said in a note. “Profits have been stunted partly because of a big increase in litigation costs relating to the over-issuance of US securities.”
Income at the company’s corporate and investment bank increased 8% on the previous year to £13.4 billion ($16.1 billion). Meanwhile fee income at Barclays International, which houses its investment bank, slid 22% to £5.2 billion ($6.3 billion).
Investors may also have been disappointed by the announcement of a £500 million ($600.7 million) share buyback, adding to pressure on the stock. “Given the group’s capital position, there’s definitely an argument that more money could be funneled back to shareholders,” Lund-Yates said.
Barclays said total share buybacks amounted to £1 billion ($1.2 billion) in 2022. The bank declared a full-year dividend of 7.25 pence per share, a 20% increase on the previous year.
Despite the weaker than expected result, staff bonuses amounted to just over £1.2 billion ($1.4 billion) for the year, a decline of only 3% on 2021.
“We are cautious about global economic conditions, but continue to see growth opportunities across our businesses through 2023,” Barclays CEO C. S. Venkatakrishnan said in a statement.