Barclays has given an indication about the scale of potential fines looming across the banking industry by setting aside £500m to cover the cost of the on-going investigations into rigging currency markets.
The provision is larger than the £290m of total fines that the bank received for manipulating Libor in 2012 and is being revealed as the Financial Conduct Authority attempts to agree a settlement with six major banks over their activities in the £3.5tn a day foreign exchange markets. The regulator is working towards revealing the outcome of this investigation and the scale of the penalties next month. Royal Bank of Scotland, which reports its results on Friday, is also part of the investigation.
When regulators publish the penalties, they are also expected to release transcripts of a wave of emails and electronic chats, as they did with the Libor scandal. The Libor emails included traders promising each other bottles of champagne, their names in gold letters and made quips such as “always happy to help,” or “done … for you big boy,” after manipulating the interest rates.
Tushar Morzaria, Barclays finance director, did not disclose on Thursday when any regulatory announcement might be made but said the £500m being set aside was “the best estimate [based] on the dialogue we are having with certain regulatory agencies”.
Barclays announced the provision as it reported its figures for the third quarter, in which it also took an extra £170m hit to cover the cost of the PPI mis-selling scandal.
The currency rigging fine will be the latest in a string of penalties to be imposed on Barclays which admitted that fraud allegations made by the New York attorney general, Eric Schneiderman, were hurting the performance of its investment bank, where profits plunged by a third.
Antony Jenkins, promoted to become boss of the bank in the wake of the Libor-rigging scandal, described the fall in profits in the once-dominant investment banking arm as “disappointing”.
Some of the fall in the investment bank came in its equities operation where Schneiderman claimed in June that the bank was misleading its customers about the way it had operated its “dark pool system” to allow specialist traders to benefit at the expense of ordinary customers. Barclays is fighting the allegations about the dark pool, a private trading system of the kind highlighted by best-selling author Michael Lewis in Flash Boys: A Wall Street Revolt.
Morzaria said Barclays market share had fallen since the allegations were made.
Profits in the investment banking arm – which had grown rapidly under Jenkins’ predecessor, Bob Diamond – were down 38% during the nine months although profits of the high street banking operations rose 18% to £2.2bn. In the third quarter, the investment bank’s profits fell more steeply, to £284m from £465m.
Jenkins has set out a plan to cut 19,000 jobs from the bank as he tries to scale back the investment banking arm, which has repeatedly caused conflict with investors over the size of the bonuses handed out to top staff. The bank has stopped publishing quarterly information about the amount of revenue being set aside to pay bonuses because it argues the figures are distorted by bonuses paid out from prior years.
Around 7,000 of the job cuts were earmarked for the investment bank’s 24,000-strong workforce when the overhaul was announced in May.. Profits for the entire bank for the nine months to the end of September rose 5% to £4.9bn when items such as a £364m loss on the sale of its troubled Spanish business are stripped out. On a statutory basis the profits rose 31% to £3.7bn.
Barclays was able to release £160m of the £1.5bn provision it has already made to cover compensation claims for small businesses mis-sold interest rate hedging products. The additional £170m provision for PPI claims takes the bank’s total provision to £5bn and comes after Lloyds Banking Group made a further £900m provision, taking its total bill to more than £11bn. The PPI scandal is the costliest ever incurred by banking industry.
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