Barclays Shares Slide as Bank Hit by New US Probes amid Falling Profits [VIDEO]
By Martin Baccardax | October 31, 2012 7:04 PM EST
Barclays is being investigated by federal investigators in the United States over two separate issues of potential corruption and illegal trading as the bank continues to fend of legal challenges amid falling profits.
Net income at the British lender, which has been at the epicentre of the global Libor scandal since the resignation of its CEO Bob Diamond in June of this year, rose to £1.73bn in the three months ending in September, the bank said in a statement Wednesday. On a nine-month basis, however, profits fell 86 percent to £712m, owing mainly to a £4bn accounting charge on the value of its own debt. A further £700m has been set aside by the bank to compensate customers for being mis-sold payment protection insurance.
"These results demonstrate that we continue to have good momentum in our businesses despite the difficulties we faced through this period," said CEO Antony Jenkins. "While we have much to do to restore trust among stakeholders, our universal banking franchise remains strong and well positioned. I am proud of how our colleagues have continued to focus on delivering for our customers and clients, and am grateful for our customers' and clients' continued loyalty to Barclays."
Barclays shares fell 4.4 percent by mid-morning in London to change hands at 228.15 pence each.
Barclays investment banking unit saw a 7 percent increase in profits to £9.129m for the nine-month period, the bank said, while the adjusted return on equity was measured at 8.8 percent, compared to 8.4 percent for the same period last year. Revenues at its fixed income, commodities and currencies unit, known as FICC, rose 10 percent to £1.58bn. The bank also announced a 3 pence per share dividend.
Excluding the £4bn accounting charge - which obliges the bank to set aside a theoretical amount of cash to buy back its own debt in the open market - allowed Barclays to post the headline 29 percent rise in third-quarter pre-tax profits of £1.73bn. Blending in the £1.1bn accounting charge for the third quarter only, however, takes that figure to a loss of £47m.
Focus on the first earnings report under new CEO Jenkins will likely centre on the bank's two federal probes, however, following the embarrassment of the Libor scandal and the £450m fine it agreed with US and British authorities.
"Barclays has been informed by the US Department of Justice (DOJ) and US Securities and Exchange Commission (SEC) that they are undertaking an investigation into whether the Group's relationships with third parties who assist Barclays to win or retain business are compliant with the United States Foreign Corrupt Practices Act," the bank's statement said, adding that the bank was fully co-operating with both.
"The United States Federal Energy Regulatory Commission (FERC) Office of Enforcement (FERC Staff) has been investigating Barclays power trading in the western US with respect to the period from late 2006 through 2008," the bank said. "On 25 October 2012, the FERC notified Barclays that it has authorised the issuance of a public Order to Show Cause and Notice of Proposed Penalties against Barclays in relation to this matter. The Order and Notice could be issued as early as today. Barclays intends to vigorously defend this matter."
Barclays became the first bank to face court action for alleged Libor fixing and derivatives mis-selling after Lord Justice Julian Flaux ruled that the bank must face its accuser, Guardian Care Homes, which is seeling £38m in damages. The dispute is a landmark test case as it will later determine how courts will decide on how to settle interest rate swap agreement (IRSA) mis-selling, as well as claimants suing over banks manipulating rates.
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