LONDON (AP) — Barclays PLC said Tuesday it is putting aside another 1 billion pounds ($1.6 billion) to cover the costs of scandals related to the mis-selling of financial products, raising speculation that other British banks may soon have to cough up more cash to cover similar scandals.
Barclays said more than half of that provision, or 600 million pounds, is to cover mis-sold payment protection insurance — usually abbreviated to PPI. That takes the total PPI provision to 2.6 billion pounds.
The remaining 400 million pounds is to cover mis-sold interest rate swaps to small businesses — a practice currently being investigated by Britain's financial watchdog. That provision takes the total up to 850 million pounds set aside.
Barclays, as well as a host of other banks have been deluged with demands for compensation from angry customers who say they didn't need the products when they were sold to them. Last week, Britain's Financial Ombudsman Service said claims were coming in faster than ever.
Shailesh Raikundlia, an analyst at Espirito Santo investment bank, said the extra cash being earmarked by Barclays "clearly suggest that further provisions are likely by other U.K. banks."
PPI was widely sold to consumers as a way to keep up with their loans, mortgages, and credit card payments if they ever got sick or lost their jobs. But in many cases the insurance was inappropriate, unwanted, or unworkable.
Investec analyst Ian Gordon said Barclays was setting aside more money for PPI than expected, bringing the bank's total liability in that scandal to 2.6 billion pounds. He said the extra charge was also bad news for Lloyds Banking Group PLC, which has taken 5.3 billion pounds out to cover PPI claims but "appears to be slightly less well provided than peers."
However, Gordon said the extra money devoted to covering mis-sold interest rate swaps — a hedging product purportedly meant to protect businesses if their interest rates went up — was lower than he had forecast, suggesting "that the overall redress on that issue will be nowhere near as severe as PPI."
Barclays is struggling to contain the fallout from various other scandals over financial malfeasance — most notably an industry-shaking uproar over its manipulation of the LIBOR, a key interest rate which affects trillions of dollars' worth of loans and other financial instruments. Last week, the bank's CEO said he was giving up his 2012 bonus because of the many difficulties.
Shares in Barclays fell 0.1 percent to 2.91 pounds in morning trading on the London Stock Exchange. Shares in Lloyds were up just slightly at 0.51 pounds.