Barclays earnings dip after raising car finance compensation bill to £325m

Barclays has revealed lower earnings after saying it was setting aside an extra £235 million to cover the cost of compensating historic car loan customers.

The banking group also revealed it suffered a £110 million hit linked to the collapse of US subprime lender Tricolor, as its boss stressed it was reviewing its loan book amid concerns about the private credit market.

Barclays made a pre-tax profit of £2.1 billion for the third quarter, between July and September, down 7% on the prior year.

This took into account the impact of it needing a higher provision for the motor finance issue.

Having reviewed the Financial Conduct Authority’s (FCA) proposed redress scheme, Barclays said it did not think its previous £90 million reserve would be enough to cover the costs.

The additional £235 million brings the group’s total provision to £325 million, which it said reflected a reasonable estimate of the cost of compensation.

However, like other lenders including Lloyds, Barclays challenged the regulator’s proposals, saying it did not think the conditions “accurately address actual loss (if any) suffered by customers and do not achieve a proportionate or appropriate outcome”.

The bank said its pre-tax profit rose by 4% year-on-year excluding the impact of the car finance provision.

It reported a 16% jump in income across its UK bank over recent months after acquiring Tesco Bank last year.

Its corporate and investment banking divisions were also boosted, while income from its consumer bank in the US soared by 19% in the third quarter.

Meanwhile, Barclays told investors it took a £600 million credit impairment charge for the third quarter, including a roughly £110 million “single name” charge.

Analysts linked this to US subprime auto lender Tricolor which collapsed last month amid allegations of fraud, at a similar time to car parts supplier First Brands.

The failures, along with some regional banks in the US revealing issues with bad and fraudulent loans, have helped raise concerns about the broader private credit market.

CS Venkatakrishnan, Barclays’ group chief executive, said the exposure to Tricolor was “obviously not a surprise – the surprise was the fraud”.

“We take our credit risk management very seriously at all points in the cycle, and credit lending has to be prepared for all outcomes, including fraud,” he said.

“So, we’re looking at the lessons we learned from this – is this a single bad actor, is it more than that, and what warnings might there have been?”

Mr Venkatakrishnan, known within the bank as Venkat, said the bank was being “vigilant” about checking the credit quality of its lending portfolio.

The chief executive also said that Barclays had been approached by First Brands in the US but “declined” to offer a loan, meaning it had no exposure to the business.

The remarks come after the Governor of the Bank of England, Andrew Bailey, said on Tuesday that the central bank must take the collapse of the two firms “very seriously” because of what they could signal about the private finance sector.

Meanwhile, shares in Barclays jumped by about 4% on Wednesday morning after the bank announced a £500 million share buyback.

This followed it making £500 million worth of cost savings in 2025, one quarter earlier than planned, amid efforts to bring down the company’s expenses.

The bank is about halfway through a three-year strategic plan to improve its financial performance, simplify the business, and return more money to investors.

Venkat said: “I continue to be pleased with the ongoing momentum of Barclays’ financial performance over the last seven quarters.

“This is driven by a stronger outlook for stable income and an earlier than planned delivery of efficiency savings.

“Moreover, it comes despite an additional charge for motor finance redress.”