Barclays cuts back risky lending after £228m hit from UK mortgage firm MFS | Barclays
Barclays is pulling back from lending to risky borrowers as its chief executive warns of a rising number of fraud cases and the bank suffers a £228m loss from the mortgage lender’s failure.
Mortgage lender Market Financial Solutions (MFS) collapsed in February amid allegations of fraud, and the UK’s financial regulator has since launched an investigation into the scandal.
Barclays provided banking services to MFS and said the £228 million loss took total loan impairment charges to £823 million in the first three months of 2026, from £643 million in the previous year.
Last year the British bank posted a £110 million loss against US sub-prime car lender Tricolor. Amidst fraud allegations.
Chief executive officer CS Venkatakrishnan said: “This [alleged] Fraud like that of Tricolor shows us the importance of strong financial controls over debtors and the difficulty of detecting fraud in advance.
“We therefore restrict lending to certain structured finance counterparties that operate more sensitive business models and who fail to convince us of the quality and independence of their financial controls.”
Losses from the collapse of MFS, Tricolor and US car parts company First Brands – with allegations of fraud or mismanagement in all three cases – have raised fears over lending standards in the $2tn (£1.4tn) private lending industry, which has come under increased scrutiny from regulators. There are concerns that this situation could destabilize traditional banks that lend to the shadow banking sector.
Andrew Bailey, governor of the Bank of England and chairman of the Financial Stability Board, described the world as a “relatively opaque world” and emphasized the need for transparency and robust stress tests, otherwise people could lose confidence in the financial system as a whole.
Venkatakrishnan added: “The frequency of these things will continue to increase… so it’s important to have strong defenses. Fraud cases depend on the weakness of the economic cycle because if you’re operating a more vulnerable business model, your incentive structure changes if the market weakens.”
Barclays has also set aside a further £105 million to compensate clients in the UK automotive finance scandal, taking the provision to £430 million. In the first quarter, pre-tax profits rose 3% to £2.8bn, while revenues rose 6% to £8.2bn.
Quarterly income from investment banking has surpassed £4bn for the first time, driven by 16% growth in equity income following business volatility since the start of the Iran war on February 28.
Venkatakrishnan warned that if the war drags on for a long time, the increase in energy prices will have a wider impact. “Higher oil prices and their persistence for a longer period of time will impact the economy,” he said. “And we care about that. We haven’t seen anything specific yet in terms of credit weakness. But what you are seeing is the inflation rate is rising in the UK.”
Later on Tuesday, Barclays will start offering debit card holders 5% cashback on up to £10 a month of fuel at Tesco pumps. “This is our way of trying to understand drivers’ concerns about the gas pump,” he said.
The bank’s chief financial officer, Anna Cross, said businesses were in “good shape” and there had been no credit deterioration for companies or consumers.
Consumers responded to the Middle East war by prioritizing essential spending and paying back more credit card debt, he said, adding that “it’s a logical thing for consumers to do this in this environment.”
Venkatakrishnan defended the bank’s trading performance against that of Wall Street banks, describing it as “middle of the pack”. He stated that Barclays does not trade commodities, while US banks benefit from commodity trading amid the Middle East conflict.
Will Howlett, financial analyst at UK asset manager Quilter Cheviot, said: “Barclays recorded a solid, if somewhat messy, first quarter, with a strong underlying performance partially marred by one-off issues.”
