Barclays hit by fresh US investigations

Barclays raised the prospect it would soon sell bonds that convert into equity if capital nears dangerous territory.

Barclays raised the prospect it would soon sell bonds that convert into equity if capital nears dangerous territory.

Barclays, already rocked by an interest rate rigging scandal, unveiled new US regulatory investigations into the bank’s financial probity yesterday and said its profit was hit by charges for mis-selling insurance.

Our universal banking franchise remains strong and well positioned

Its shares fell almost five per cent, hurt by a weaker performance in investment banking than most of its Wall Street rivals and fears that legal problems would handicap its new chief executive’s efforts to overhaul the company.

Following investigations in the UK over its dealings with Qatari investors, Barclays said the Department of Justice and Securities and Exchange Commission were probing whether its relationships with third parties who help it win or retain business are compliant with US laws.

The bank is under investigation by Britain’s financial regulator and fraud prosecutor into payments to Qatari investors after it raised billions of pounds from the Gulf state five years ago to save it from taking a taxpayer bailout.

Barclays revealed the Financial Services Authority investigation in July and confirmed the Serious Fraud Office had launched a probe the following month.

Barclays also said yesterday the US Federal Energy Regulatory Commission could be close to fining it over an investigation into the manipulation of power prices in the Western US from late 2006 until 2008.

FERC could notify the bank of proposed penalties this week, and Barclays said it would “vigorously” defend this matter. The investigation was first announced in April, alleging the bank took substantial electricity market positions to move daily index settlements.

In March, the agency fined Constellation Energy a record $245 million (€196 million) over power market manipulation activities as part of a fresh crackdown on power market rigging.

New Barclays chief executive Antony Jenkins, who took over at the end of July when his predecessor Bob Diamond quit after the bank admitted rigging Libor interest rates, is in the midst of a review to change culture and lift profitability, due to be unveiled in February.

Investors have made it clear they want a return on equity above the cost of equity, higher dividends and for pay to be cut, Jenkins said. That is expected to mean the investment bank arm will be significantly cut back.

“While we have much to do to restore trust among stakeholders, our universal banking franchise remains strong and well positioned,” he said.

The bank has fired staff, clawed back pay and taken other disciplinary action after a “very rigorous” internal investigation into the Libor manipulation, Jenkins said. He declined to provide more specific details on how many staff it had taken action against.

Barclays was fined $450 million by US and UK regulators for the rate rigging. More than a dozen other banks are expected to be fined.

The bank said its adjusted pre-tax profit in the three months to the end of September was £1.73 billion (€2 billion), in line with analysts’ forecasts and up from £1.34 billion a year ago. But a £700 million charge for mis-selling payment protection insurance pulled pre-tax profit down 23 per cent to £1.03 billion, and a £1.1 billion loss on the value of its own debt dragged it to a loss of £47 million for the quarter.

Investment bank income was £2.6 billion in the quarter, up 17 per cent on the same period the previous year, but down 13 per cent on a strong performance in the second quarter.

The bank said performance during October had been affected by the “challenging economic environment and subdued market volumes”.

That included a 20 per cent fall in income in its fixed income, currencies and commodities business from the previous quarter, a worse performance than rivals such as J.P. Morgan, Goldman Sachs and Deutsche Bank.

Barclays raised the prospect it would soon sell bonds that convert into equity if capital nears dangerous territory. Britain’s regulator is assessing the merits of so-called “contingent capital”, which Barclays said were an “attractive” option for investors and would help its capital structure”.


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