Barclays has agreed to pay another $150m to US regulators over misconduct related to foreign exchange market trading, taking the bank’s total fines to $2.55bn (£1.7bn).
Barclays agreed the settlement with the New York State Department of Financial Services – and has also agreed to ‘terminate’ an unnamed executive in charge of electronic fixed income, currencies and commodities at the bank – to bring to an end a probe into misconduct linked to an electronic trading platform.
The BBC says that Barclays “used super-fast trading systems to reject unprofitable client orders, then failed to disclose why they were rejected”. Reuters further explains that it used a software feature called ‘Last Look’ in order to automatically reject client orders that would be unprofitable for the bank due to “price swings in the milliseconds-long hold periods” after orders were placed.
Industry guidelines say that banks should not use such features to reject client orders – and Barclays did update most of its systems after the regulatory probe was launched last so that it only rejected deals that would also be unprofitable for customers. But one system was left out and therefore the practice continued on seven platforms until August of this year, the settlement says.
The settlement also cites the behaviour of executives that showed the practice was deliberate, including an email dating back to 2011 in which one senior manager told staff to “just obfuscate and stonewall” if clients asked why orders were rejected. A staff member who questioned the system back in 2014 was also told that Last Look ensures profitability for Barclays but that the bank “does not share this info with the client”.
In May, Barclays was one of five banks to be fined a total of $5.7bn after pleading guilty to criminal charges related to the manipulation of foreign exchange benchmarks. It was fined the largest amount of $2.4bn, the BBC notes, because it failed to take part in a regulatory settlement in November 2014 worth a combined £2bn.
Since then, Barclays has agreed with other banks to pay $1bn to settle private legal claims relating to Forex fixing in a case that could trigger further actions for billions of pounds in damages in the UK.
Barclays shares slump on weak results
29 October
Barclays is the latest bank to post weaker-than-expected results that have been affected by provisions for past wrongdoing. The bank’s third-quarter report, published this morning, revealed profit fell by around a third during the three months from £1.2bn to £861m.
This was primarily the result of previously disclosed settlements with US regulators over boom-era mortgage debt securities and foreign exchange rate fixing, which the Financial Times notes cost a combined £560m.
Disappointing figures were not just constrained to past performance. The bank revealed that preparing for ring-fencing of its customer account-holding retail arm in the UK by 2019 will push its costs up next year from £14.5bn to £14.9bn – and by a total of £1.1bn by the time the restructuring is completed.
The return on equity target for 2016 was lowered from 12 to 11 per cent.
Rounding off the bad news, Reuters says Barclays’ capital reserves were unchanged from the second quarter at a little more than 11 per cent of assets.
This is lower than analysts expected and slightly below transitional guidelines set by the UK regulator, which has given some to speculate Barclays may seek to raise new funds.
There were some more positive notes. In particular the investment bank increased its profits by 12 per cent, at the same time as many of its larger international peers have slipped back in a “tough market”.
Core retail and commercial banking operations increased earnings by eight per cent.
Underlying profits missed their target by ten per cent, but this was largely the result of widening losses in the non-core division that is being slowly sold off.
The results will emphasise the challenges facing new boss Jes Staley, the veteran US investment banker unveiled as the bank’s incoming chief executive this week.
Among a number of objectives, the Daily Telegraph‘s James Quinn says that he will need to move the bank on from past wrongdoing and boost morale if he is to turn around its performance.
“Staley should move to end all discussions around possible wrongdoing to allow Barclays staff to feel good about the company they work for once again. The results will be immeasurable,” Quinn writes.
Barclays appoints investment banker Staley as new chief
28 October
Barclays has finally appointed its new chief executive, confirming widespread media speculation by hiring veteran investment banker Jes Staley. Early reports have focused on Staley’s hefty pay deal, which could take his total earnings to well in excess of £10m in his first year if he hits targets.
Reuters notes the package includes a basic salary of £1.2m, a role-based “allowance” of £1.6m in cash and shares and an annual bonus of up to £5.5m. He will also be granted a £1.9m share award to compensate for a similar entitlement he is forfeiting at his former employer JP Morgan.
Attention is also concentrated on his background, with a 35-year career concentrated mainly in so-called ‘casino’ investment banking giving rise to speculation Barclays is turning back on a period of retrenchment for this underperforming part of its business.
But in a note to staff to introduce himself, Staley indicated he is committed to slimming down these operations to “complete the necessary transformation and repositioning… to a less capital intensive model”. This, he said, was part of a programme to “complete the cultural transformation” of Barclays begun under his predecessor Anthony Jenkins.
Under this banner he also asserted his “unequivocal” respect for regulators and pledged to ensure relationships with watchdogs are “collaborative, not adversarial”. He may need this to be the case if he is to navigate successfully one of the key challenges early in his reign: the separation and ‘ring-fencing’ [3] of the retail banking unit by 2019.
Barclays is thought to be seeking to achieve this by setting up the retail bank that holds customer deposits as a subsidiary of the investment bank rather than an entirely separate entity, allowing it to share the benefits of a stronger capital base.
It will, however, need to convince regulators this is not watering down the principle of protecting customer deposits from any problems that emerge within the riskier investment arm.
Barclays investors still seem uncertain on the new appointment. Shares in the bank were down 0.5 per cent this morning, compared to a rise of 0.3 per cent for the wider FTSE-100.
Barclays in ‘bombshell’ bank ringfence plan
21 October
Barclays is thought to be drawing up plans that will “drop a bombshell into the heart of the debate about banking reform”, Sky News reports.
The high street bank’s chairman, John McFarlane, is said to have briefed around 100 of his top executives on a requested exemption from the tough new ‘ringfencing’ rules coming into force in 2019. The waiver would prevent the credit rating on Barclays’s investment banking operations from being “slashed”, but the plan will face intense regulatory scrutiny.
Barclays is to propose to the Bank of England’s banking watchdog that its deposit-holding retail bank becomes a subsidiary of the investment bank in a “mother-daughter” arrangement, according to the Financial Times.
Under new rules designed to prevent taxpayers from having to bail out banks holding customer’s cash, banks will be required to put a firewall between these retail arms and the more risky ‘casino banking’ units. Regulators are said to have envisioned a “sibling” structure in order to ensure the greatest degree of independence.
Barclays would eventually switch to this model, but only once it has had several years to build up capital in its underperforming investment banking arm. The bank’s executives are concerned that if the business was immediately thrust out on its own, ratings agencies would downgrade its credit to “junk” status and the cost of its capital would dramatically increase.
Putting the retail bank within the same holding company will not alleviate this problem altogether as the new rules only allow for limited asset transfers that do not take retail banking units below the prescribed minimum levels of reserves. But it would mean that the bank’s capital was counted together and this could prevent Barclays from having to raise billions of pounds to shore up its investment bank balance sheet.
McFarlane is said to have acknowledged that the plans may not succeed. Regulators are already facing scrutiny from MPs for an apparent watering down of banking rules to allow asset transfers and reverse a ‘guilty until proven innocent’ assumption for any rules breaches.
Other banks have also reportedly requested waivers for certain elements of the new ringfence rules. The FT reported earlier this year that Lloyds was seeking permission to use the same board for both its retail and investment banks.
Barclays pays £210m to settle boom-era mortgage claims
20 October
Barclays has paid $325m (£210m) to settle claims with a US regulator over complex mortgage-backed securities sold at the height of the pre-crisis property boom – and which went spectacularly sour.
The National Credit Union Administration (NCUA) confirmed a $378m deal with Barclays and Wachovia, which is now part of Wells Fargo, to settle claims brought in 2012 over the complicated debt products that contributed to the global financial crisis, reports Reuters.
‘Residential mortgage-backed securities’ were used by banks during the property boom to pass on the liability arising from huge sums of mortgage debt issued, including to non-credit worthy borrowers. Each security was effectively a package of small portions of many individual mortgages, of varying degrees of risk.
The products were thought at the time to be immune from terminal default because they pooled riskier loans with other, safer assets. But ultimately a large number did fail as huge numbers of so-called ‘sub-prime’ borrowers defaulted on their mortgages, with the ripple effect sparking the credit squeeze among major banks that presaged the crash.
The NCUA brought claims against the issuing banks, including Barclays, alleging the securities were misrepresented to corporate credit unions as being ultra-low risk. “Mortgages backing the securities were much riskier than the offering documents stated, with a ‘material percentage’ all but certain to become delinquent or default, the lawsuit said”.
This latest settlement brings to $2.2bn the amount the watchdog has recovered from banks, with lawsuits still pending against HSBC, Goldman Sachs, UBS, Credit Suisse and Morgan Stanley. The banks which have settled have not admitted to any wrongdoing.
The Daily Telegraph notes Barclays had disclosed in its July interim results it was facing claims relating to $2.3bn worth of boom-era mortgage securities, with a current value of around $800m. It has said it will book the latest provision in its third quarter results, published next week.
Barclays stopped trading in mortgage-backed securities this summer, “as part of its efforts to scale back risky operations that under new banking rules must be supported by large capital holdings”.
Jes Staley: who is the man tipped to be Barclays’ CEO?
13 October
Name:
Jes Staley, 58
Why is he in the news?
Boston-born Jes Staley is reported to be the likely successor to Antony Jenkins as chief executive of the UK banking giant Barclays. His appointment is expected to be announced formally in the next two weeks, according to sources who spoke to the Financial Times.
What are his credentials?
Staley spent over three decades working for the US investment bank JP Morgan, eventually heading up its global asset-management and investment-bank units. At one time he was considered a possible successor to Jamie Dimon as CEO, but he was passed over for promotion in a round of executive changes in 2012. He left the bank the following year to join the hedge fund Blue Mountain Capital.
Is his appointment significant?
Yes, not least because it marks a bit of a reversal from the strategic direction taken when Jenkins was appointed three years’ ago. This followed the ignominious end of Bob Diamond, another American investment banker, amid a series of regulatory fines and presaged a period of scaling bank on investment banking activities.
“In picking him now, Barclays has acknowledged its earlier error,” Glenn Dubin, co-founder of investment firm Highbridge Capital Management, told Bloomberg. “There are probably only half a dozen people in the world that are wired to be CEO of big money-centre institutions. Jes is one of those people.”
What has been the reaction?
Experts quoted in the press have welcomed the move, but investors don’t seem convinced by an apparent move back towards casino backing. Barclays shares were down 2.9 per cent on Tuesday morning after the news broke.
What challenges does Staley face?
Plenty. As an investment banker, he’ll have to manage the separation of this unit from the retail bank in the UK under the new ring-fence laws. He will also have to navigate a much more difficult regulatory climate, which is marked by new capital constraints on banks to prevent their future collapse.
Barclays itself is also under pressure over its comparatively small margins and high costs. The bank is in the midst of a series of major cutbacks that will see some 30,000 staff go – but which investors have welcomed as a sign that Barclays is moving away from the bureaucratic, unwieldy structure of old.
Barclays may have to foot ex-trader’s Libor legal bill
01 October
Barclays is having a hard time getting past historic wrongdoing. In the latest reputational setback, it has emerged that the bank may be on the hook for the legal bill of ex-traders accused of interest rate manipulation, for which it has already paid out heavily in fines.
A US district court judge refused Barclays’ request to dismiss a lawsuit filed by former traders Alex Pabon, Jay Merchant and Ryan Reich, who worked in its New York office, Reuters reports. Barclays decided to stop picking up their legal bill last year after they were charged by the UK Serious Fraud Office with conspiring to manipulate the London interbank offered rate (Libor).
Since 2009 the trio have been cooperating with authorities in the UK and US over probes into Libor fixing. They allege Barclays’ decision to stop paying their legal fees is therefore a violation of legal whistleblower protection. Barclays counters that it does not have any contractual obligation to pay and that too much time had elapsed for its action to be considered retaliatory.
The judge said it would be premature to rule for the bank, which he said was “complicit at high levels with any misconduct committed by the plaintiffs”, and that a determination of Barclays’ obligations “should be made in light of all of the facts”.
Elsewhere, another former Barclays trader, Chris Ashton, has made headlines after refuting that the actions of traders amounted to ‘rigging’ and accusing authorities of misunderstanding call transcripts on which enforcement actions were based.
Business Insider notes the bank was fined £1.5bn by regulators in the UK and US after admitting its role in the global scandal, but that Ashton, who has also worked for Swiss bank UBS, says the evidence was misinterpreted due to an “inability to decipher Cockney rhyming slang”. His lawyer told a court in London yesterday that there were questions over the investigation as Ashton was not even interviewed about the evidence by the financial services watchdog the Financial Conduct Authority.
Barclays has been recovering in the past two days after its shares hit a seven-month low in the wake of revelations over a separate SFO investigation (see below). Its shares were up 1.4 per cent to 247.5p on Thursday.
Barclays shares at seven-month low amid probes
20 September
Barclays shares closed at their lowest level since early February on Tuesday, amid ongoing regulatory action into past wrongdoing and the latest wider market tumble.
It has emerged that the Serious Fraud Office is locked in a legal battle with the bank over sensitive evidence dating from before a contentious equity raising in 2008 (see below).
In the wake of the revelation, as well as that the Swiss competition watchdog is also investigating Barclays along with six other banks over commodities market rigging, the stock fell 2.5 per cent to 239.6p.
In the eyes of many analysts this typifies a recent downward trend that makes the stock worth buying, especially as it has been returning capital to investors consistently for the past two years. According to the Financial Times, of 25 analysts that are tracked, only two have either an ‘underperform’ or ‘sell’ rating in place, with 18 either recommending a ‘buy’ or that it will ‘outperform’ in the months ahead.
Most also broadly welcome the moves by executive chairman John McFarlane to cut costs in a restucturing that is expected to see 30,000 jobs go and a number of “non-core” divisions sold (see below). Reuters reports on the latest disposal: the sale of the Bmarkets unit responsible for distributing complex structured products in France, Italy, Germany and Switzerland.
But some argue the investors selling off in the wake of the latest revelations might be on to something. Writing on The Motley Fool, James Skinner points out that after adjustments for things such as fines and redress provisions, Barclays barely made a per share profit in 2013 and actually recorded a net loss in 2014. If such costs rise again in the near future, losses for 2015 “cannot be ruled out”.
For now though, this remains a minority view and investors are piling back into the bank in line with a broader market rally. It was up two per cent to 244p on Wednesday afternoon.
Barclays shares hit as SFO court battle revealed
29 September
Barclays shares took a hit on Tuesday, as details of secret court hearings with the Serious Fraud Office and another probe by a global regulator into price-fixing were revealed.
The Financial Times reports that the bank is fighting a crown court application from the SFO for access to evidence relating to its £5.8bn “emergency cash call” at the height of the financial crisis in 2008.
The watchdog “is probing allegations that the bank covertly lent Qatari investors money that they then used to participate in the cash call”, which would breach listing rules.
The bank has said the evidence is legally privileged, meaning it could relate to legal advice given to the bank. Such correspondence remains confidential even during a criminal probe unless “it can be shown lawyers were also part of an alleged fraud”.
A first hearing was held in July, but was subject to an injunction that was only lifted on Monday. A follow-up hearing is being held in December.
The FT suggests there is little chance the SFO will agree a US-style deferred prosecution agreement with the bank – which would include fines but halt criminal proceedings – as this requires “full” co-operation including “likely waiving privilege on key material”, and this has not happened.
Elsewhere the Daily Mail says Barclays was named as one of seven banks, including fellow UK-based lender HSBC, to be named by the Swiss Competition Commission in relation to a probe into price fixing on certain commodity markets.
The regulator claims to have “evidence that banks ‘possibly concluded illegal competition-defying deals’ in the trade of precious metals”. The investigation is expected to conclude in 2017 and could trigger big fines and wider action.
Barclays shares were down 1.8 per cent on Tuesday afternoon, well ahead of the 0.6 per cent decline on the FTSE-100. HSBC was down 0.6 per cent.
Barclays profit jump fails to quell thirst for cuts
29 July
Barclays interim boss John McFarlane has signalled he will target more savings to improve the bank’s competitiveness, in spite of strong half-year results which showed a 25 per cent jump in profit.
The figures revealed a surge in unadjusted pre-tax profit at the group to £3.7bn for the six months to June. Barclays retail bank accounted for £1.5bn of this, up four per cent on the same period of 2014, while the investment banking unit which has been under pressure in recent months over poor performance saw profit soar 36 per cent to £1.4bn.
After taking account of various adjustments, the bank’s pre-tax ‘statutory’ profit stood at £3.1bn. Included in these calculations is £1bn that has been set aside to compensate consumers for mis-selling of products such as payment protection insurance and packaged bank accounts, and £800m for ongoing legal actions relating to issues such as exchange rate manipulation.
The Times notes that the figures come just three weeks after McFarlane unceremoniously sacked previous chief executive Anthony Jenkins and took the reigns as executive chairman until a replacement is appointed. With the period covered coming during Jenkins’ tenure, the paper says the results will “prompt questions about why he was ousted”.
But while McFarlane praised the results he maintained his stringent tone and pledged to continue an ongoing cost cutting drive. This could mean seeking further job cuts on top of the 19,000 already scheduled to disappear by 2016, as previously reported by the Times, or closing more branches. Reuters points out that Barclays closed 98 branches in the year to June.
The Financial Times says the bank is targeting a fall in the cost-to-income ratio from around 70 per cent to the mid-50s. The paper explains that the current level, which means it spends £70 to achieve every £100 of revenue, puts it well behind US peers such as JPMorgan, Citigroup and Bank of America who boast ratios of 62 per cent or lower.
Video: reaction to Barclays’ results
Barclays: could bank be first to agree SFO deal?
22 July
Embattled banking group Barclays could become the first company to agree a ‘deferred prosecution’ deal with the Serious Fraud Office (SFO) under new powers handed to the agency last year, according to the latest reports.
Both the Financial Times and Sky News cite people “close” to the investigation confirming that an overture has been made by the SFO for the bank to enter into negotiations under a US-style deferred prosecution arrangement. This represents an attempt to bring an end to a long-running investigation over the bank’s capital raising with Qatari investors in 2008.
The bank has said only that no DPA offer has been formally made. According to the FT, “discussions are at a very early stage and no offer is on the table”.
Powers to agree DPAs were handed to the SFO in February of last year but have yet to be used. According to The Guardian the agency, which has faced criticism over botched investigations including the high-profile collapse of its case against property tycoon Vincent Tchenguiz that led to it paying out £3m in damages, has sent a number of ‘invitations’ to firms to open negotiations.
Any deal would require Barclays to admit to wrongdoing in a case that includes allegations it manipulated markets by making false statements and propped up shares by paying investors to participate in capital raising. The bank would probably face fines and restitution payments, but in return any criminal investigation would be deferred.
Barclays is already contesting a fine of £50m from the Financial Conduct Authority over the capital raising and in particular over £322m in fees paid to Qatari Holdings over five years, which the regulator says were not fully disclosed.
The bank reports its half-year earnings next week and investors will watch for developments in the case. The results will also be watched for any news on redundancies after reports claimed a further 30,000 jobs could be set to go in a fresh cost-cutting drive.
Barclays jobs cull report lifts share price
21 July
Barclays’s share price has surged to an 18-month high on the back of a report in The Times that executive chairman John McFarlane could be about to announce tens of thousands of job cuts in a bid to reduce costs and boost returns to investors.
The paper said yesterday that the bank, which is currently being led by McFarlane following the sacking of Antony Jenkins this month, is considering cutting 30,000 jobs over the next two-years to get global headcount below 100,000 and turn around persistently underwhelming performance.
Cuts are likely to be particularly heavy in the retail bank where new technology is being introduced to improve efficiency. The investment bank, which has fallen from grace since the financial crisis and is now the worst performer in the group – with a return on investment of just 2.7 per cent – is also unlikely to be spared.
The Daily Telegraph says the cuts would be an extension of a redundancy programme announced last year to reduce headcount by 19,000 by 2016, with 7,000 job cuts coming from the investment bank. It suggests that around 10,000 job losses are still needed to meet that target, implying a total reduction of 39,000 by 2017.
However, the paper adds that insiders reckon the plans for automation are ambitious and that the cuts, aimed at reducing costs from around £18bn currently to £14.5bn, will not be achieved. Reuters reports that sources within the bank had said no new targets for redundancies had been set ahead of a trading update announcement next week.
Investors were undeterred. Building on gains following the announcement of Jenkins’s departure, shares closed up and continue to trade at highs not seen since January 2014. In morning trading on Tuesday they were again up 0.8 per cent at 281.65 pence.
Antony Jenkins: Barclays fires its chief executive
8 July
Barclays has sacked chief executive Antony Jenkins after he fell out with the board over the pace of the bank’s cost cutting.
Barclays deputy chairman Sir Michael Rake said he had “reflected long and hard on the issue of group leadership”, the BBC reports, and concluded that a “new set of skills” was required at the head of the lender.
Jenkins was appointed as chief executive in August 2012, after the previous boss, Bob Diamond, resigned. The lender said the search for his successor is under way.
The Financial Times speculates that one potential replacement is Tushar Morzaria, who has impressed investors since he was hired as chief financial officer from JPMorgan two years ago. In the meantime, chairman John McFarlane has been named executive chairman until the new chief executive is found.
In a statement, the bank paid tribute to the departed boss. It said: “The Board recognises the contribution made by Antony Jenkins as chief executive over the past three years in incredibly difficult circumstances for the group, and is extremely grateful to him in bringing the company to a much stronger position.”
The BBC’s business editor Kamal Ahmed said several board members were unhappy with the speed of change at the bank.
Sky‘s business presenter Ian King said it was clear that Jenkins’ mission was to “effect a fast turnaround at the bank”. A perceived lack of urgency “seems to have been what sealed [his] fate.”
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