Currency rigging overshadows Barclays profit
Further provisions cannot be ruled out
BARCLAYS set aside an extra £750 million (R13.5 billion) to cover the cost of settling the probe into alleged currency rigging and posted a 32 percent drop in full-year pretax profit at its investment bank. The shares fell.
The latest provision for currency rigging brings total charges to £1.25bn, the Londonbased bank said yesterday.
Pretax profit at the investment bank fell to £1.4bn from £2bn in 2013.
Chief executive Antony Jenkins, 53, yesterday said he could not rule out further provisions for currency rigging, overshadowing his effort to boost earnings. Since taking over in 2012, the chief executive has been eliminating some 14 000 jobs, cutting £1.7bn in costs and shrinking the investment bank.
“They’re still suffering from the legacy of the pre-credit crisis – those issues are still coming back to haunt them,” said Chris White, who helps to oversee about £3.2bn at Premier Asset Management.
“The core business is attractive but it’s taking time to get there and there’s still quite a lot of work to do.”
The stock fell as much as 3.1 percent, the biggest intraday drop since January 14, and traded 3 percent lower at 254.80p at 11.05am in London. That pares the share’s advance this year to about 4.7 percent.
Barclays’s latest provision for currency rigging comes after the bank dropped out of settlement talks in November, when banks including Citigroup and UBS Group agreed to pay $4.3bn (R50.32bn) in fines.
The bank’s £1.25bn provision compares with £720m at Royal Bank of Scotland, which paid £634m to two regulators in November. HSBC has set aside $550m after paying fines of $618m.
Barclays is yet to reach a settlement and continues to be investigated by regulators such as the US Department of Justice, the New York Department of Financial Services and Britain’s Financial Conduct Authority.
“I can’t completely say that will be the end of the foreignexchange provision, though because the discussions are still ongoing with a number of authorities,” Jenkins said. “I’m cautiously optimistic that we’ll be able to resolve this matter within the coming months.”
The lender also set aside an additional £200m in the fourth quarter for selling customers payment-protection insurance products they did not want or need.
Jenkins, a consumer banker by training, has pledged to overhaul the bank’s culture after his predecessor, Robert Diamond, stepped down in the wake of a fine for rigging the Libor interest rate.
As part of his revamp, he set up a bad bank to dispose of £115bn of assets, including complex derivatives from the lender’s fixed-income, currencies and commodities unit and the European consumer arm.
“We remain focused on addressing outstanding issues, including those relating to foreign-exchange trading,” Jenkins said in the statement.
“I regard the behaviour at the centre of these investigations as wholly incompatible with our values.”
Profit before provisions rose 12 percent to £5.5bn in 2014, beating the £5.3bn estimate of 19 analysts provided by the company. Including those provisions, pretax profit fell 21 percent to £2.3bn. The net loss for the year was £174m.
Cut in staff
Operating expenses fell 9 percent to £18.1bn in the year, including the cost of its Transform restructuring programme and a 5 percent cut in staff. The cost-income ratio was at 70 percent, down from 71 percent. At the investment bank, operating costs fell 15 percent to £1.6bn in the fourth quarter from a year earlier. The unit’s revenue slid 7 percent to £1.7bn.
The investment bank’s return on average equity, a measure of profitability, was 2.7 percent in 2014, is lagging the core group’s 12 percent target.
Barclaycard was the bestperforming unit, with a 16 percent return, followed by a 11.9 percent return in personal and corporate banking.
European banks are under pressure to hold more capital against risky assets to help shield them in future financial crises.
At the non-core unit, housing unwanted assets, riskweighted assets fell £35bn to £75bn last year. The group’s leverage ratio was at 3.7 percent at the end of the year, up from 3.5 percent three months earlier. Barclays will pay a dividend of 6.5p a share for 2014, the same as in 2013.
Jenkins received a £1.1m bonus for 2014, his first since becoming chief executive, raising his total compensation to £5.5m. The bank cut variable compensation by 22 percent to £1.9bn from £2.4bn. – Bloomberg