Losses And Extra PPI Provisioning Fail To Dampen Cheer In Barclays

The management of Barclays has reason to cheer as the first-quarter results of 2012 were announced. Despite setting aside £300 million extra for settling claims filed by victims of mis-sold PPI policies, the bank announced a loss of just £475 million before tax. The bank had made a profit of £1.66 billion for the same quarter in the previous year. An adjustment of £2.62 billion combined with the extra provisioning resulted in the loss. The management is adopting a bullish approach because the bank would have earned a profit of £2.45 billion had the accounting adjustment and PPI provisioning not been done. This figure is in excess of the earlier forecasts of profit of £2 billion.

The bank attributed the rise in profits to a good performance in retail, business, corporate, and investment banking segments. The non-investment banking segment also helped boost the profits significantly. The bank enjoyed a 16% increase in profits from the retail banking division in the United Kingdom. Profit from Barclaycard rose by 18% to £349 million. The adjustment relating to debt valuation amounting to £2.62 billion indicates the loss that the bank would have suffered had it purchased its debt back. This is not an actual loss but is merely the result of an accounting policy change.

Barclays was compelled to increase the provisioning towards payment protection insurance compensation after there was a drastic increase in number of claims last year. The bank had participated in a legal challenge in April over the determination of PPI rules. The bank lost and was forced to accept claims that it tried to reject. As is generally known, payment protection insurance is designed to help borrowers continue repayment even after an illness, loss of job or death. Mis-selling by banks led to losses for customers and protests from consumer groups.

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