Barclays Saudi Probe Adds to CEO Jenkins’s Regulatory Woe
Barclays Plc (BARC) Chief Executive Officer Antony Jenkins, almost two years after his predecessor said it was time for banks to stop apologizing, is still grappling with a multiplying number of probes by regulators.
The U.S. Department of Justice is investigating whether the lender made payments that violated the Foreign Corrupt Practices Act to win a banking license for its wealth-management unit and investment bank in Saudi Arabia, the Financial Times reported on Nov. 9, citing unidentified people familiar with the talks. The bank is already being probed by the Serious Fraud Office over fees it paid in 2009 to Qatar’s sovereign-wealth fund as the lender sought money to avoid a government bailout.
For Jenkins, who replaced Robert Diamond after the lender paid a record fine for manipulating Libor, the probes are likely to be a bigger setback to his efforts to show politicians the bank can put regulatory missteps behind it than the size of any fines, according to analysts. He may have to include stiffer internal controls to detect staff who break laws in pursuit of revenue when he announces the results of his review of Barclays’s operations in February, said Christopher Wheeler, a London-based banking analyst at Mediobanca SpA.
“Jenkins has to continue to batten down the hatches, say these issues came out of the pre-crisis period and say he can create an atmosphere where it doesn’t happen again,” said Wheeler, who rates the shares an outperform. “The more that comes out, the more he can wave the big stick in February.”
In January 2011, Diamond told a panel of British lawmakers that the time for “remorse and apology” for banks needed to be over. Since then, the lender has paid a record 290 million-pound ($461 million) fine after regulators found its investment bankers tried to manipulate the London interbank offered rate.
The consumer bank, which Jenkins, 51, previously ran, has also been hobbled by compensation claims from Britons wrongly sold so-called payment-protection insurance they didn’t require or lost them money. The lender last month set aside an additional 700 million pounds to cover the costs of redress, bringing the total to 2 billion pounds, second only to Lloyds Banking Group Plc (LLOY), the country’s biggest mortgage lender.
U.S. regulators this month also proposed levying a record $470 million in penalties on Barclays after it allegedly gamed energy markets in the Western U.S. from late 2006 to 2008.
John McGuinness, a Barclays spokesman, and the Department of Justice’s Rebekah Carmichael declined to comment on the Saudi probe. The Saudi Arabian capital markets regulator, known as the CMA, said it is “not aware of any investigation” into Barclays and hasn’t received any inquiries from regulators on the matter.
The stock fell as much as 1.1 percent to 227.55 pence in London and was down 0.6 percent to 228.85 pence at 8:59 a.m. local time, giving the lender a market value of 28 billion pounds. The shares have advanced 30 percent this year, the third-biggest increase among British banks after Lloyds and Royal Bank of Scotland Group Plc. (RBS)
Barclays, Britain’s second-largest bank by assets, received a license from Saudi Arabia’s market authority to operate in the kingdom in August 2009. The London-based lender sought to expand its wealth-management operation in the region as the country’s oil wealth created more millionaires.
The lender said in an Oct. 31 filing that the U.S. Justice Department and Securities and Exchange Commission were probing whether its relationships with unidentified third parties who help the bank win business comply with the Foreign Corrupt Practices Act.
Estimating the size of any fine U.S. authorities may impose is difficult without knowing more about the nature of the Justice Department’s investigation, said Cormac Leech, a banking analyst at Liberum Capital in London.
“Manipulating the energy or Libor markets is more significant because of its scale, so I would think any penalty would be less,” he said by telephone yesterday.
The bank’s wealth-management business contributed 6.1 percent of Barclays’s 33 billion pounds of revenue in 2011. The company doesn’t disclose how much the Saudi Arabian operation contributes.
“Because the business is relatively small, I don’t think you’re talking about hundreds of millions of pounds” in fines, Mediobanca’s Wheeler said.
The Saudi probe follows a U.K. inquiry by the Serious Fraud Office into fees the bank paid in 2008 to Qatar’s sovereign- wealth fund as the lender sought money to avoid a government bailout. The company has said it’s investigating and is co- operating with U.S. Authorities. The SFO has given Barclays a notice that requires it to hand over documents and witnesses, the FT reported. SFO spokesman David Jones declined to comment.
Allegations of improper payments could still drag more senior executives into the bank’s crisis than the traders implicated in the Libor scandal, said Ismail Erturk, a senior lecturer in banking at Manchester Business School.
“This shows the problems are more than just about investment-banking culture,” he said by telephone. “It shows we need a much broader investigation into banking. This is a new category of wrongdoing by banks. It’s not about manipulating markets, it’s something else more unsavory.”
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