Trouble Ahead for Barclays

published 30 May 2006

Barclays has played its part in helping British consumers build up over £1trn pounds of debt in the past few years, and has made healthy profits along the way, says Lex in the FT. So it's no wonder that the UK banks cannot really complain that some of their loans have turned "sour".

So what's going on? Barclays has confessed that bad debt charges on unsecured loans and credit card advances have increased "significantly". And this is unnerving news for shareholders: the bank in February tried to play down the impact that the consumer downturn would have on its Barclaycard division, says Mike Verdin on Breakingviews.com. They were obviously unprepared for the significant blow to the division, which is responsible for one fifth of the group's profits. Moreover, the division also processes more than one third of all UK credit and debit card spending. In other words, if the economic environment looks like it may be in for a tough time, Barclays will undoubtedly suffer.

All that's now left for Barclays to do is hope that the interest rate hikes have come to an end, says Verdin. This would allow the bank to increase spreads, which in turn could chase away those newer customers who are creating the bad debt chaos. But if you think Barclays is in for a tough time, spare a thought for a number of Barclays rivals, says Lex in the FT. At least Barclays can turn to its Capital Investment bank division. That's more than can be said for Egg, HBOS and Lloyds TSB