Barclaycard profits hit by rise in bad debts

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Mounting bad debts are likely to see profits from Barclays' credit card business drop this year for the first time since 1997, the bank said yesterday.

Higher interest rates and energy costs mean more Britons are failing to service debts run up on their plastic. About 5 per cent of credit card balances are unpaid across the industry, against 3.75 per cent a year ago. Pre-tax profits at Barclaycard, the country's best-known credit card brand, failed to pick up between July and September after a 17 per cent tumble in the first six months of the year. They look certain to fall well shy of the £801m delivered by the division in 2004.

A spokesman for Barclays said: "There has been some strain in the consumer sector. Rising outgoings, such as mortgage payments and heating bills, have chipped away at people's ability to service credit card debts."

The gloom over bad debt, concern over costs at the bank and an otherwise lacklustre update on recent trading unsettled Barclays shares. They fell 6.5p to 595.5p, and were the worst-performing stocks in the FTSE 100. Others in the sector were unnerved by Barclays. Northern Rock slipped 3p to 839.5p, and HSBC lost 4.5p to 935.5p.

Barclays, the UK's third-biggest bank, is also raising eyebrows by spending heavily on Juniper, the US credit card business it bought last year, and on its investment banking and asset manage-ment operations. The company justified the steep outlay by pointing out that these parts of the business are doing well and returning decent profits.

The Barclays Capital investment banking division - responsible for about one-fifth of group profits last year - is growing profits strongly, allowing bumper bonuses to be awarded. Business and international banking are also doing well, as are the asset and wealth management divisions. Barclays remains on track to deliver record profits of at least £5bn this year.

Analysts expect a 13 per cent improvement on last time, with earnings per share of 52.8p. High street banking delivered strong profit growth in the first nine months of the year after costs were screwed down. Revenues rose modestly.

John Varley, the chief executive of Barclays, said: "Barclays continues to deliver strong profit growth. The contributions are well spread by business line and we expect full-year earnings per share to be broadly in line with market consensus."

Most analysts said record profits would be no surprise and had been factored into Barclays' share price. They said investors could do better elsewhere in the sector.