Barclays dragged into rate exchange inquiry

The UK’s third-biggest bank by stock market value said a number of regulatory and enforcement authorities are investigating foreign exchange trading, including attempts to manipulate benchmark exchange rates.

Barclays said it is co-operating and it is also reviewing its foreign exchange trading over a period of several years up to August this year.

The investigation adds to a string of probes faced by Barclays boss Antony Jenkins, who took over as chief executive 14 months ago.

He is trying to rebuild the bank’s reputation after a series of scandals.

Barclays reported underlying pre-tax profits of £1.4bn for the three months to the end of September, down from £1.9bn a year ago but above an average forecast of £1.25bn.

Profits at its investment bank fell 53 per cent to £463m from £988m a year ago, which was below expectations.

It was the investment bank’s lowest quarterly profit since the end of 2011 and was due to a 44 per cent slump in revenue from fixed income, currency and commodities.

Lower activity was driven by uncertainty about when the US Federal Reserve will start slowing its quantitative easing programme, which is pumping billions of dollars into the economy every month.

Profits from the UK retail and business banking were down two per cent at £351m.

Several banks are under the spotlight over alleged rigging in the $5.3 trillion-a-day foreign exchange market.

UBS and Deutsche Bank are also cooperating with regulators, while Royal Bank of Scotland said it is reviewing its FX processes.

“From time to time these legacy issues will arise and will have to be dealt with,” said Mr Jenkins.

“We are in the process of changing the culture of Barclays. I’ve said it will take five to 10 years to deeply embed that cultural change and we are on track.”

Mr Jenkins declined to comment further on the currency probe or on other investigations, such as a fundraising from investors in Qatar five years ago when Barclays acted “recklessly” for failing to disclose payments, according to Britain’s financial watchdog. Activity across banks has been hit by uncertainty over US monetary policy, but Barclays’ performance was worse than most of its biggest rivals.

However, equities and advisory businesses performed strongly with income up on the year.

Barclays said that provision for mis-selling payment protection insurance (PPI) remained unchanged.

It has £1.26bn left of a £3.95bn pot set aside to cover compensation schemes.

The latest investigation into rate-fixing comes after Barclays paid £290m in fines to US and UK regulators in June last year over the manipulation of Libor and Euribor interbank rates, in a scandal that claimed the scalp of chief executive Bob Diamond.

Mr Jenkins has launched a crusade to overhaul the culture of the bank, with a major restructuring programme called Transform that has cost £741m so far this year.

He said the group is “well-positioned to take advantage of improvements in the global macro environment”.

He said the performance was resilient, but added: “I am not complacent, and my executive team know we must push harder in the final quarter into 2014.”

Last month, the bank received strong support for a £5.8bn rights issue offered as part of a plan to meet the City regulator’s demand that it plug a £12.8bn hole in its finances.

Mr Jenkins said that plans to meet the demands by June 2014 were on track.

Analysts said a poor performance in bond trading had been expected and the absence of any new provisions for mis-selling was positive.

“Barclays is at a stage where management attention in the medium term will largely be focused on fixing the de-leveraging process and boosting capital levels,” said analyst Chirantan Barua at brokerage Bernstein.

“Meanwhile (the) fixed income outlook globally remains muted in the medium term.”

Mr Jenkins’ turnaround plan also involves shrinking his bank and he said a plan to get rid of £80bn of assets will be exceed- ed.

“I can say with certainty that over time we will achieve more than the £65bn to £80bn reduction we committed to in July,” he said.

New finance director Tushar Morzaria will lead a new review of assets and details will be announced in February.

That de-leveraging is part of a plan that also includes the £5.8bn rights issue last month.

Barclays said the rights issue would lift its leverage ratio to 2.9 per cent, or 2.6 per cent based on the same criteria used by the regulator.

Analyst Nic Clarke, at Charles Stanley, said: “Barclays’ Transform programme remains largely on track and the group has the potential to make substantial cost savings.

“Barclays currently trades on around 0.85 times book value which we believe is fair value as the group may struggle to increase return on equity above its cost of equity (around 11.5 per cent) and be re-rated.

“Therefore, our recommendation remains ‘hold’.”

A player on the world stage

Barclays provides personal banking, credit cards, corporate and investment banking and wealth and investment management.

It has an extensive international presence in Europe, the Americas, Africa and Asia.

The bank has over 300 years of history and now operates in over 50 countries and employs 140,000 people.

Barclays traces its origins to a goldsmith banking business established in the City of London in 1690. In 1967, it deployed the world’s first cash machine.

It has made numerous corporate acquisitions, including the North American operations of Lehman Brothers in 2008.