PPI bill will be £700m dearer for Barclays

Barclays shocked the market yesterday as it confessed that compensating victims of the Payment Protection Insurance scandal will cost £700m more than had been feared.

The extra provision will likely push the bank into a loss of about £100m for the third quarter of the year and takes total provisions to £2bn.

However, that includes an accounting adjustment to the value of the bank's own debt, without which it would be expected to be able to announce adjusted, pre-tax profits of £1bn.

The provision caught the City – which had been expecting just a small top-up – by surprise and sent the shares into a brief tailspin.

The bank said the decision to upgrade its provisions was based on claims experience to date. It is currently in the process of contacting customers who may be eligible to claim.

Privately, banks are furious about the activities of the claims management industry, which can demand a substantial cut of any compensation, for sometimes doing little more than filling in a couple of forms.

They argue that communications regulators should have done more to curb an aggressive campaign of cold-calling and texting that some of these companies have engaged in.

Barclays itself has said that something over 50 per cent of the claims lodged with it come from people with no prior relationship with the bank. Other banks are thought to have similar numbers. The bank is scheduled to unveil its first results statement under the stewardship of Antony Jenkins on 31 October.