Remember Barclays chief executive Antony Jenkins' famous memo to staff at the start of last year? "We must never again be in a position of rewarding people for making the bank money in a way which is unethical or inconsistent with our values," he declared.
He went on: "There might be some who don't feel they can fully buy into an approach which so squarely links performance to the upholding of our values. My message to those people is simple: Barclays is not the place for you. The rules have changed. You won't feel comfortable at Barclays and, to be frank, we won't feel comfortable with you as colleagues."
A worthy declaration after past scandals, especially the damaging £290m Libor-rigging settlement that spelled the end for Bob Diamond and brought Jenkins into office. The question, though, was always whether Jenkins' word was law within Barclays. Did he have the ability and power to enforce a change of culture quickly, especially at the US end of the investment bank dominated by ex-Lehmans staff?
Now New York attorney general Eric Schneiderman has alleged "fraud, dishonesty and deception" in Barclays' operation of a so-called "dark pool" trading system in US. His 30-page lawsuit is filled with references to 2013 and 2014 – well into Jenkins' reign.
Barclays has yet to make a detailed response to the allegations. The bank says it takes the charges "very seriously" and that "the integrity of the markets is a top priority of Barclays." The bank could yet choose to defend its behaviour and fight the case, as it is with allegations that it rigged energy markets in the US between 2006 and 2008.
But US regulators tend not to back down easily. Schneiderman is making three specific and detailed complaints. First, that Barclays gave preferential treatment to aggressive high-frequency traders by feeding them privileged information on trading patterns. Second, that the bank didn't warn pension funds and conventional investors that the LX dark pool was dominated by predatory high-frequency traders. Third, that Barclays' heavily-marketed software for monitoring trading, and removing aggressive players, was "a sham".
Schneiderman paints a picture of a bank that was hell-bent on creating the biggest dark pool and didn't care if clients got the best prices for the shares they were buying and selling. And he claims internal whistleblowers provided much of his evidence. One "former senior Barclays director" is reported to have said: "It's almost like they are building a car and saying it has an airbag and there is no airbag or brakes."
To repeat, Barclays' detailed response is awaited. But this lawsuit clearly has the potential do serious damage to Barclays' reputation with institutional clients. It could also do immediate and specific damage. Sandy Chen, banking analyst at Cenkos, says he expects Schneiderman to try to revisit Barclays' non-prosecution agreement after the Libor settlement and even Barclays banking licence in New York.
He adds: "Barclays' noted that the complaint seeks "injunctive relief" – which we think signals that the New York attorney general and Barclays are already debating whether injunctions on dark pool trading should be imposed." That would cause an immediate hit to revenues.
In short, this affair has the potential to play havoc with Jenkins' reform programme. In the brief period of optimism that coincided with Jenkins' memo and strategic review at the start if 2013, Barclays shares touched 300p for the first time since the calamitous Libor scandal. Optimism is now in shorter supply. The share price is 219p, down 5% today. Jenkins has always argued that overhauling Barclays is a big job that will take time. The task looks even bigger and longer today.
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