LONDON, UNITED KINGDOM — Shares in Barclays slumped as much as 10 percent Wednesday after the British bank announced a surge in bad loans alongside a drop in annual profits linked to US litigation charges.

Barclays booked a charge of £500 million ($605 million) in the final quarter on soured loans linked to “macroeconomic deterioration”.

AJ Bell investment director Russ Mould noted that “fourth quarter profits were depressed by a… credit impairment charge linked to a worsening economic outlook”.

“On a full year basis, earnings were also hit by £1.6 billion of litigation and conduct charges from over-issuance of securities in the US.”

Net profit slid 19 percent to £5 billion last year, Barclays said in its earnings statement.

“2022 was a year of almost unprecedented challenges for Barclays and for society more broadly,” added chairman Nigel Higgins.

“As a bank, we continued to demonstrate our resilience, our ability and commitment to support customers, clients and wider stakeholders in ever-changing economic conditions.”

While banks are benefitting from higher interest rates, they are having to put money aside to cover anticipated bad loans caused by a cost-of-living-crisis.

Mould said Barclays shares were hit also by a smaller-than-expected share buyback programme.

“In an environment where banks are one of the few beneficiaries of rising interest rates, one might have expected Barclays to dig deep and buy back a lot more shares, which would in turn boost shareholder returns.”

Climate policy 

Also Wednesday, Barclays updated its climate policy by restricting finance for companies involved in extraction of oil from tar sands.

“Barclays has taken an encouraging step forward today in tightening its restrictions around oil sands finance, after years of investors pushing for change on the issue,” noted Jeanne Martin at lobby group ShareAction.

But she expressed disappointment that the bank’s fracking policy was unchanged and hit out over its failure to announce restrictions on the financing of new oil and gas projects.

“Barclays should step up and act swiftly to update its oil and gas policy,” Martin demanded.

Regarding Wednesday’s earnings update, Hargreaves Lansdown lead equity analyst Sophie Lund-Yates said the bank “has bitterly disappointed the market”.

She added that the shares slump reflected several factors, including a tough trading environment for its investment banking unit.

In 2022, a total “£1.2 billion has also been squirrelled away to help prepare for an increase in bad debt as the macro-economic environment remains shaky and question marks remain about consumer spending, or rather repayment, power”, Lund-Yates said.

Barclays stock clawed back ground in late afternoon deals to close at 172.70 pence, but that still marked a 7.8-percent drop from the closing level on Tuesday.

The results update comes after Barclays in November said its chief executive C.S. Venkatakrishnan was suffering from cancer and would remain in the top post while undergoing treatment.

The bank’s former of head of global markets was promoted to CEO after predecessor Jes Staley quit in late 2021.

Staley was forced out amid a probe into his links with US sex offender Jeffrey Epstein.

Barclays has stressed that watchdogs have made no findings that Staley saw or was aware of crimes committed by Epstein, who killed himself in a New York jail in 2019 while awaiting trial.