Barclays has reported a dip in earnings after significantly increasing the amount of money it has set aside to compensate customers for historic car loan issues. The bank boosted its provision for motor finance redress by £235 million, bringing the total to £325 million, which directly impacted its third-quarter profit.
Between July and September, Barclays made a pre-tax profit of £2.1 billion—a 7% drop from the same period last year. This decline came largely due to the higher provision for the motor finance scheme, as the bank responded to the UK regulator’s ongoing review of historic car finance practices.
The Financial Conduct Authority (FCA) is currently reviewing how commission arrangements on car loans may have led to customers paying more than they should have. Barclays originally set aside £90 million to cover possible compensation costs but said the latest proposal from the FCA required a reassessment.
According to Barclays, the updated £325 million figure now represents what it considers a “reasonable estimate” of the total redress it may need to pay. Still, the bank disputed some of the FCA’s assumptions, stating that they don’t believe the proposals accurately reflect customer losses or provide a fair and proportionate outcome.
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Impacts
While the car finance issue weighed on results, not all news was negative. Stripping out the provision, Barclays’ pre-tax profits would have increased by 4% year-on-year. The bank saw a 16% increase in income across its UK division, helped by its acquisition of Tesco Bank in 2024. The corporate and investment banking arms also reported gains, and income from its US consumer banking division jumped by 19%.
At the same time, the bank booked a total credit impairment charge of £600 million for the quarter. That included a £110 million loss related to a specific company—identified by analysts as Tricolor, a US-based subprime auto lender that recently collapsed amid allegations of fraud.
Tricolor
The collapse of Tricolor dealt a major blow to Barclays. The bank’s CEO, CS Venkatakrishnan (known as Venkat), said the exposure was not unexpected—but the fraud behind the failure was.
He explained that although Barclays had assessed the company and understood the risk, the fraud element could not have been predicted. The bank is now reviewing its credit processes to determine if this was an isolated case or if there are broader lessons to be learned. Venkat added that credit risk management is something the bank takes seriously and is constantly improving.
Interestingly, Barclays also confirmed that it had been approached by another troubled US firm—First Brands—but chose not to lend to them. That decision means the bank avoided further exposure to potential losses in that case.
Caution
These developments come amid growing concern about the stability of the private credit market. Several smaller regional US banks have also reported rising defaults and fraud-related losses. Bank of England Governor Andrew Bailey recently highlighted the need to monitor the situation closely, stating that the collapse of companies like Tricolor and First Brands could signal deeper problems in the sector.
Venkat acknowledged these concerns and emphasized that Barclays is staying vigilant. The bank is actively reviewing its lending book to monitor credit quality and avoid similar surprises in the future.
Despite these headwinds, Barclays managed to lift investor sentiment with a £500 million share buyback announcement. This pushed the bank’s stock up by 4% on Wednesday morning.
The buyback was made possible by £500 million in cost savings achieved in 2025—one quarter earlier than expected. Barclays is now halfway through its three-year plan to streamline operations, improve profitability, and increase returns for shareholders.
Venkat said he was encouraged by the bank’s performance over the past seven quarters and noted that stable income growth and early delivery of efficiency targets helped offset the redress charge.
The bank remains focused on its strategy and aims to continue returning more capital to shareholders in the months ahead. While the motor finance compensation remains a short-term hit, management believes the long-term outlook remains solid.
FAQs
Why did Barclays profits drop?
Due to a £235m increase in car finance compensation provision.
What is the total compensation fund?
Barclays has set aside £325 million for motor finance redress.
What is the Tricolor impact?
Barclays lost £110 million due to Tricolor’s fraud-related collapse.
Did Barclays avoid losses with First Brands?
Yes, Barclays declined to offer a loan to First Brands.
Why did Barclays shares rise?
Shares rose after a £500m buyback and early cost savings.
