Barclays and four ex-bankers charged with 2008 fraud

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.

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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.

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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.