Barclays hit by £400m PPI bill as profits take a tumble

PROFITS at Barclays dropped 20pc as it set aside yet more cash to deal with the PPI scandal.

The lender’s profit fell to £2.1bn in the first half of the year, reflecting a struggle with volatile markets and record low interest rates.

And it set aside an extra £400m for PPI claims – taking the total costs of mis-selling payment protection insurance to £7.8bn.

The figures from one of Britain’s biggest banks came as the eurozone braced for the results of bank stress tests expected to show major weaknesses in Italy.

The world’s oldest bank, Monte dei Paschi di Siena, was expected to come in for severe criticism due to the large amounts of bad debt on its books. Bosses were last night scrambling to agree a private sector rescue package to shore up its finances before markets reacted to the results of the test.

German investment giant Deutsche Bank is also a source of concern. Its profits and share price have crashed in the past year, it is sitting on a £35trillion portfolio of risky derivatives and the International Monetary Fund last month suggested that if it ever collapsed it could bring down the global system with it.

Swiss lender UBS provided a small respite amid the gloom on the Continent, reporting secondquarter profits of £1.2bn, down 15.3pc on the previous year but ahead of analysts’ expectations.

But even there, bosses said there was further gloom ahead and warned that banks must work more closely together in future.

Investors cheered the Barclays results as evidence that boss Jes Staley’s strategy was paying off.

Staley took over at the end of last year with a pledge to speed up the process of nurturing Barclays back to profit. The bank’s high-risk loans and underwhelming foreign operations were split off into a so-called non-core division, while the bank’s core arm is made up of business it sees as safer and more profitable.

Profits in the core side rose by a better-than-expected £620m to £4bn. Non-core losses were £1.9bn, up from £745m a year earlier and partly driven by a write-down in French operations. The non-core operation has been cut by £7.6bn to £46.7bn following sell-offs in Portugal and elsewhere.

Barclays shares yesterday rose 5.5pc, or 8.05p to 154.55p.