London-based Barclays PLC (BCS - Free Report) has kept aside an additional £1.0 billion ($1.6 billion) to meet the litigation expenditure pertaining to the dubious sale of financial products. The banking giant is under tremendous pressure from the British authorities over its scandalous activities.
Out of the amount, nearly £600 million is likely to be used for settling claims related to the sale of payment protection insurance (PPI), taking the total PPI provision to £2.6 billion. The remaining £400 million is set aside for resolving claims linked to the sale of interest rate swaps, bringing the total provision for swaps to £850 million.
Barclays has been flooded with compensation demands as most of the customers allege that the financial products were sold to them forcefully. For instance, PPI – an insurance product – were sold to customers as a means to keep paying their loans, mortgages, and credit card obligations in case they took ill or were unemployed. However, customers who bought it claim that the insurance was inappropriate and useless.
The doubtful sale of the complex financial products is not the only scandal faced by Barclays. In 2012, the company reached a $453 million settlement with both British and U.S. regulatory bodies over the manipulation of the London Interbank Offered Rate or LIBOR.
Similar to Barclays, another European bank namely UBS AG (UBS - Free Report) conceded to paying a penalty of CHF 1.4 billion ($1.5 billion) to the U.S., U.K. and Swiss authorities to resolve charges against the bank for its involvement in LIBOR rigging. The regulatory authorities are also investigating Bank of America Corporation (BAC - Free Report) and JPMorgan Chase & Co. (JPM - Free Report) among others over their alleged involvement in the rate manipulation.
Barclays is striving hard to come out of the series of financial controversies it had been involved in. The company is likely to announce restructuring initiatives along with its fourth-quarter earnings on Feb 12. It is probable that the company could retrench around 2,000 employees. Moreover, the CEO has let go off his bonus for the past one year.
The Zacks Earnings ESP (Read: Zacks Earnings ESP: A Better Method) for the company is 0.00%. This, coupled with its Zacks Rank #4 (Sell), indicates that the company may miss the Zacks Consensus Estimate for the fourth quarter.