Barclays, already rocked by an interest rate rigging scandal, unveiled new U.S. regulatory investigations into the bank’s financial probity and said its profit was hit by charges of mis-selling insurance. Its shares fell almost 5 percent, hurt by a weaker performance in investment banking than most of its Wall Street rivals and fears that legal problems would handicap its new chief executive’s efforts to overhaul the company and correct lots of problems that have caused great difficulty. Following investigations in the United Kingdom over its dealings with Qatari investors, Barclays announced that the Department of Justice and Securities and Exchange Commission were probing whether the bank’s relationships with third parties who help it win or retain business are compliant with U.S. laws.
The bank is under investigation by Britain’s financial regulator and fraud prosecutor into payments to Qatari investors after it raised billions of pounds from the Persian Gulf state five years ago to save it from taking a taxpayer bailout. Barclays revealed the Financial Services Authority (FSA) investigation in July and confirmed the Serious Fraud Office had launched a probe the following month. Barclays now says the U.S. Federal Energy Regulatory Commission could be close to fining it over an investigation into the manipulation of power prices in the western United States from late 2006 until 2008.
FERC has notified the bank of the proposed penalties. Barclays says it will “vigorously” defend this matter. The investigation was first announced in April, alleging the bank took substantial electricity market positions to move daily index settlements. In March, the agency fined Constellation Energy a record $245 million over power market manipulation activities as part of a fresh crackdown on power market rigging. The New CEO at Barclays, Antony Jenkins, took over at the end of July when his predecessor Bob Diamond quit after the bank admitted rigging Libor interest rates. Jenkins is in the midst of a review to change the culture at the bank and lift profitability. This is scheduled to be unveiled in February of 2013.
Investors have made it clear they want a return on equity above the cost of equity, higher dividends, and for pay to be cut, according to Jenkins. That is expected to mean the investment bank arm will be significantly cut back. The bank says it has fired staff, slowed down back pay and taken other disciplinary action after a “very rigorous” internal investigation into the Libor manipulation. Barclays was fined $450 million by U.S. and UK regulators for the rate rigging. More than a dozen other banks are expected to be fined.
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