Barclays Shares Tumble 6% as Bank Issues Profit Warning Amid Rising Loan Defaults in UK Economic Downturn

Barclays plc, which is among the big four banks of Britain in Britain caused ripples within the City today when its shares tumbled more than 6% to 185 pence in early trading on the London Stock Exchange after the bank gave a there-and-then profit warning, blaming the phenomenally increasing bad loans and recent regulatory pressures.

The announcement by the heavyweight FTSE 100 wiped out PS1.5 billion of its market value and added to a year-to-date drop of 18% that showed weaknesses in the UK banking industry in the face of continuing high interest rates and consumer debt burdens.

The announcement disclosed that anticipated pre-tax profits are expected to amount to PS7.5 to PS8 billion; in 2025, a reduction on the previous projection of PS8.5 billion midpoint, as a result of a PS900 million impaired loan provision, twice the amount incurred in the previous quarter.

The Bank of England data indicates that mortgage arrears were at a high since 2013, and the management attributed the blow to the decline in credit quality in retail and small business segments. Net interest income, which has been inflated by high rates, increased 4% to PS12 billion, and this was less than forecasts because of the flight to deposits in more lucrative savings products.

This disappointing development is taking place in the context of a rather bleak UK economic environment, in which GDP growth has stagnated at 0.1 per cent in Q3 according to the ONS data, and inflation remains at 2.5 per cent despite the BoE pauses.

The exposure of the domestic lending – 60% of the book – by Barclays also increases risks, and buy-to-let portfolios are the ones that feel the squeeze of 5%+ mortgage rates bashing landlords. International subsidiary, which also included US credit cards, offered certain mitigation with 8% growth in revenue, though the general ROTE on tangible equity declined to 12% against the target of 15%.

The downgrades by the analysts came in waves, with HSBC reducing its target by 210 pence compared to 240 pence and retaining a neutral rating. The report quoted that the cost-income ratio of Barclays, as it crept to 62% is a pointer that the company is facing difficulties in its efficiency in its low-growth environment.

The shares, which reached 220 pence in May, are now trading at 10 times forward earnings, which is a discount to other companies of this group, such as Lloyds, but is attributable to the litigation overhang caused by previous mis-selling scandals. The frenzy trading followed, whereby volumes surpassed the usual volumes 4 times the usual volume as shorts flooded in and short interest rose to 4% of float.

The rout fell 0.8 cent on FTSE 100 to 8,200, and banking counterparts NatWest and HSBC lost 3-4 per cent in sympathy. More European financials reverberated the agony, the signals of ECB tight policy being extended evoke concerns of a credit crunch.

FTSE 100 Banking Misery Tangles as Warning by Barclays Stokes Sector Sell-Off

The wakeup call at Barclays exacerbated industry sickness, the FTSE 350 banks index fell 3.5 per cent – its sharpest fall since the mini-crisis of March. Investors ran to gilts, making their yields fall 5 basis points as safe-haven bids grew in front of Wednesday’s Autumn Budget. The headwinds to the dividends could be PS500 million more on the mooted windfall tax extensions on banks by the industry lobbies.

Barclays is on strategic pivots. The lock-in rates on deposits of the lender, the so-called structural hedge programme, have safeguarded PS200 million of the income, yet the digital banking application has been used by 80% of the clientele, reducing the cost of the branch to 15%.

The re-energised investment banking, after Brexit, recorded 10% fee growth due to M&A advisory and capitalising on a 20% deal volume recovery in the UK. However, regulatory capital provisions, which have been increased to a 13.5% CET1 ratio, limit the lending capacity in the implementation of Basel IV.

There is an ambivalent picture of economic indicators. The unemployment rate is 4.6, which contributes to the rise in wages but contributes to the default threats, and consumer confidence is -20 according to the research of GfK, the lowest level since the pandemic.

In a statement, the chief executive of Barclays promised to undertake risk in a prudent manner and selective growth, indicating that the company will probably sell assets in non-core European segments to strengthen buffers. The dividend of 8 pence per share, giving 4.5% is held, and is 2x covered by earnings.

In the case of Barclays, since the company was established in the 1690s as a Quaker company, this episode has kept it on its toes after 2008. The bank has survived through the Libor fines and ring-fencing reforms and is left with a PS300 billion balance sheet diversified in cards, mortgages, and corporates. Volatility of earnings, however, remains: the bumper profits of 2024 caused by the rate increases are now reversed as normalisation takes its bite.

Autumn Budget Looms: Can Fiscal Relief Stem Barclays’ Credit Crunch?

Banking cries to be relieved as the situation of Barclays highlights Reeves as she is preparing her fiscal salvo on November 27. There is growing pressure on corporation tax deductions on provision and stamp duty concessions to resuscitate the housing markets – a bailout of the mortgage books. A 10 billion infrastructure fund is proposed, which will stimulate corporate lending that may increase net interest margins by 5%.

Innovation provides relief: AI fraud has reduced scam losses by half to PS100 million, and blockchain trade finance pilots anticipate 20% efficiency improvement. Alliances with fintechs such as Wise improve cross-border flows, which is currently 15% of the revenues. Barclays has PS50 billion of liquidity headroom, and it is looking at opportunistic buybacks after the volatility has died.

Governance weaknesses are pointed out by the critics: executive compensation scandals and greenwashing investigations are reputational baggage. A sterling depression – this time down 1% – increases the cost of funding overseas, and US election tariffs jeopardise cross-Atlantic business. Nevertheless, the bank has a 14% tier-1 capital, which is higher than the industry average and can afford to manoeuvre.

Shareholder mood wanes: aggregate total performance is 20 years behind the FTSE 100, and value ratios scream bargain – price-to-book at 0.4x. Contrarians can gnash under 180 pence and make a bet on a rate-cut pivot in 2026, which will boost provisions by 30%.

Barclays in the UK financial fray is the embodiment of the tightrope: at the core of its legacy, it has to stand and operate against the contemporary maelstroms. With debts accruing and rates rising, this banking giant is forced to manoeuvre to avoid warning before it turns into writedowns. The scrutinising eye of the City waits Budget balm – or more mutilation.