Profits at UK bank Barclays fell more than expected in the first half due to a £1.9 billion (€2.3 billion) hit for regulatory missteps, mostly from covering the costs of having to buy back billions of dollars worth of securities it sold in error.

The British lender on Thursday reported profits before tax of £3.7 billion (€4.4 billion) for the first six months of the year, down from £4.9 billion (€5.2 billion) in the same period a year ago and just below the average of analysts’ forecasts of £3.9 billion (€4.6 billion).

Despite the higher regulatory costs the bank said it would pay out a dividend of 2.5 pence per share and launch a share buyback of £500 million (€597 million).

The bank’s shares fell 1 per cent in early trading. Litigaton and conduct charges in the first half were £1.9 billion (€2.3 billion).

The results were marred by a fresh £1.3 billion (€1.5 billion) charge to cover the costs of buying back $17.6 billion (€21 billion) worth of securities it sold in breach of US regulations, in an error that has blighted chief executive CS Venkatakrishnan’s first year in office.

The impact would have been worse but for a £758 million (€904 million) gain made on a hedge placed by Barclays against losses arising from the error, the bank said, adding that the net hit to its financials was £580 million (€692 million).

The lender said its total balance sheet provision for the error as of June 2022, including previous charges, had ballooned to £1.8 billion ($2.2 billion).

The bank said on Monday it will on August 1st begin buying back the investment products. Barclays said in March it had oversold a range of complex structured and exchange-traded notes, breaching limits agreed with US regulators.

Barclays also became the latest bank to be involved in US regulator investigations into non-compliant use of communications tools by staff, which it said would cost a total of $200 million (€196 million).

The bank said it had reached an agreement in principle with the Securities and Exchange Commission and the Commodity Futures Trading Commission this month to resolve the matter, with the final penalties expected to be paid in the third quarter.

Barclays’ investment banking unit reported a strong performance, with income from its global markets trading division up 48 per cent to £5.6 billion (€6.6 billion) in the first half.

Barclays’ fixed income, currencies and commodities business, seen by analysts as its traditional trading powerhouse, reported income up 51 per cent due to higher levels of activity as clients traded in volatile markets.

Equities income rose by £754 million (€899 million), almost entirely due to hedging arrangements the bank put in place to mitigate against the costs associated with its over-issuance securities.

The bank had previously said it was exposed to falls in stock markets as it prepared to buy back the securities it over-issued at their original price, and would put in place a hedge to protect against that. — Reuters