Barclays takes £110m hit on bust sub-prime car dealer

Barclays has taken a £110million hit against collapsed US sub-prime auto lender Tricolor and almost quadrupled the sum it has set aside for car loan mis-selling in the UK.

The news came as the bank unveiled a 7 per cent drop in third quarter pre-tax profits to £2.1billion, blamed partly on the charges.

Chief executive C. S. Venkatakrishnan, known as Venkat, said ‘lessons had been learned’ from Tricolor’s sudden failure.

‘Our exposure was not a surprise, the surprise was the fraud,’ he said.

‘When you lend money you have to be prepared for all outcomes, including fraud,’ he added.

His comments came just a day after Bank of England governor Andrew Bailey warned that ‘alarm bells’ were ringing in the unregulated private credit market after the collapse of Tricolor and another US firm, car parts maker First Brands.

Barclays boss C. S. Venkatakrishnan, known as Venkat, said ‘lessons had been learned’ from Tricolor’s sudden failure 

Jamie Dimon, boss of America’s biggest bank JP Morgan, has also warned more ‘cockroaches’ may emerge from shadow banking after admitting its exposure to the bankrupt Tricolor was ‘not our finest moment’.

Bailey has ordered a stress test of this so-called ‘shadow banking sector’ amid fears that loose lending by private equity firms and hedge funds could pose a systemic risk to the mainstream banking sector.

The review will cover private markets – finance provided to large businesses outside of normal bank lending or issuing publicly traded shares or bonds.

They have become a vital source of funding for consumers and businesses as traditional banks have retreated from riskier lending since the 2008 financial crisis.

Barclays’ Venkat said it was wrong to make a clear distinction between shadow and mainstream banking. ‘It’s not public (versus) private. It’s lending,’ he said.

‘There are obvious connections between what banks and non-banks do,’ he added, but insisted Barclays ran ‘a very risk-controlled shop’.

Barclays reviewed its loan portfolio after being stung by Tricolor.

It has no exposure to First Brands, having turned down the chance to back it several times, Venkat said.

Barclays has also increased the amount it expects to pay British customers who were mis-sold car finance from £90million to £325million.

The move came after the Financial Conduct Authority, the City regulator, published details of a redress scheme.

Barclays, which quit the car loan market in 2019, said it would challenge the FCA on how far back the redress scheme should look and whether car buyers had suffered any harm.

Venkat also pushed back against calls for bank to face a windfall tax in next month’s Budget, arguing they were taxed at almost double the rate of their Wall Street peers.

The bank described UK lending conditions as ‘benign’ as it brought forward a £500million share buyback to its third-quarter earnings.

‘We have been robustly and consistently generating capital for our shareholders consecutively over the last nine quarters,’ Venkat said.

It also upgraded its estimate of net interest income – the gap between what it charges borrowers and pays savers – to more than £12.6 billion for the year, up from over £12.5 billion.

Barclays shares, which dipped last week on concerns about its £20billion exposure to private markets, rose almost 4 per cent to 377p in early trading.

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