Barclays hit by Tricolor collapse faces scrutiny over private credit exposure and car loan redress

Barclays has faced a fresh setback after the collapse of US subprime lender Tricolor resulted in a £110 million impairment, casting a shadow over its latest quarterly results. The FTSE 100 bank revealed this blow as it disclosed that its total exposure to the burgeoning private credit markets now stands at approximately £20 billion, intensifying regulatory focus on this complex financial sector.

In its third quarter figures, Barclays reported pre tax profits of £2.1 billion for the three months ending September, a decline of seven per cent year on year but in line with analyst forecasts. Despite these challenges, Barclays also announced a significant £500 million share buyback programme and raised its guidance for return on tangible equity above 11 per cent for the year, which led to an uplift in its share price.

The impairment stems from Tricolor’s bankruptcy amid allegations of fraud, with Barclays’ chief executive CS Venkatakrishnan, known as Venkat, stating that while the Tricolor exposure itself was not surprising, the fraudulent element was unexpected. Barclays noted that approximately 70 per cent of its private credit exposure lies within the United States, representing about six per cent of its £346 billion lending portfolio. The bank insists it maintains rigorous risk control, working with seasoned managers boasting strong track records.

Concern over the private credit sector is mounting across the financial world. Recent failures like Tricolor and First Brands have prompted warnings from financial leaders, including the Governor of the Bank of England, who pointed out that recent collapses may signal wider underlying issues in the three trillion dollar global private credit market. Barclays opted not to provide credit to First Brands, citing inadequate financial projections.

Alongside its issues in private credit, Barclays has increased its provision for car loan compensation claims, adding £235 million to a total of £325 million. This move responds to the Financial Conduct Authority’s plans for an £11 billion redress scheme covering mis sold motor finance. Barclays, which exited the motor finance market six years ago, expressed reservations about the scale and aim of the FCA’s proposals, suggesting many claims may not reflect actual customer losses.

The scheme is expected to impact millions of motorists, with the regulator estimating nearly half of all agreements between 2007 and 2023 could be adjudged unfair. Barclays maintains that the financial impact will remain manageable given its relatively small presence in this sector. The FCA is still consulting on its scheme, signalling room for industry engagement before the final rules are set.

Barclays, alongside other major UK banks, continues to play a part in schemes like Motability, with potential changes to government tax breaks on the horizon. The latest developments underscore both the substantial risks and regulatory uncertainties overshadowing Barclays as it works to fortify its operations and deliver on its strategic turnaround.