Facundo Arrizabalaga/European Pressphoto AgencyA branch of Barclays in London. On Wednesday, the British bank posted a net loss of £106 million ($170 million) in its latest earnings report.
LONDON – Barclays faces more legal trouble after the British bank disclosed two new investigations by American authorities, clouding the already weak third-quarter results.
The bank on Wednesday said the Justice Department and the Securities and Exchange Commission are investigating whether Barclays broke U.S. anti-corruption laws in its capital-raising efforts during the financial crisis. The inquiry follows similar efforts by British regulators.
The United States Federal Energy Regulatory Commission is also investigating the past energy trading activity in Barclays’ American operations. American authorities have until Oct. 31 to charge the British bank in the matter. Barclays said it would defend itself against any potential allegations stemming from the inquiry.
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Graphic: Wall St. Earnings CalendarThe fresh legal woes, which follow the rate-rigging scandal that erupted this summer, complicate a difficult turnaround effort for Barclays.
On Wednesday, the British bank posted a net loss of £106 million ($170 million) in the three months ended Sept. 30, a steep drop from a £1.4 billion net profit it reported in the period a year earlier. The results were hit by a charge on its own debt and provisions connected to the inappropriate sale of insurance to clients.
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Justin Thomas/VisualMedia, via Agence France-Presse — Getty ImagesAntony Jenkins, chief of Barclays.
“The last three months have been difficult for Barclays,” said Antony P. Jenkins said on a conference call with reporters on Wednesday.
Shares in the British bank fell 3.8 percent in morning trading in London.
Mr. Jenkins took over as chief executive from Robert E. Diamond Jr., who resigned in July after Barclays agreed to pay $450 million to settle charges that it attempted to manipulate a key benchmark, the London interbank offered rate, or Libor. In the aftermath, Mr. Jenkins promised to increase the focus on retail banking, shifting away from riskier activity in the firm’s investment banking unit.
The new joint investigation from the Justice Department and S.E.C. relates to Barclays’ capital raising efforts during the recent financial crisis.
Unlike its peers, the Royal Bank of Scotland Group and the Lloyds Banking Group, the British bank turned to sovereign wealth funds in Abu Dhabi and Qatar for new cash. Barclays raised a total of $7.1 billion from Qatar in July and October 2008.
Earlier this year, the bank disclosed that British authorities were investigating the legality of payments to Qatari investors in connection to Barclays’ capital raising. The firm’s disclosure on Wednesday said U.S. regulators are also pursuing similar enquiries. Barclays said it was cooperating with the investigations.
Despite its overall net loss, Barclays is making progress as its underlying businesses show signs of improvement. Excluding the adjustments, Barclays said pretax profit rose 29 percent, to £1.7 billion, in the third quarter.
Amid the continued volatility in global financial markets, Barclays said pretax profit in its investment and corporate banking division more than doubled in the quarter, to just over £1 billion, because of a strong performance in fixed income and equities. The European debt crisis, however, weighed on Barclays’ retail and business banking franchise. Pretax profit in the group fell 31 percent, to £794 million.
Ian Gordon, a banking analyst at Investec Securities in London, said a fall in revenues at Barclays’ investment banking division during the third quarter had raised some questions about the unit’s performance, though the British bank was in a position to win market share as competitors, such as UBS which announced 10,000 layoffs on Tuesday, move to reduce their trading activity.
“As other pull back, there’s a potential to win a greater share of the piece,” Mr. Gordon said.
Barclays, however, warned that continued difficulties in Europe and uncertainty in global markets could weigh on future profitability. “We continue to be cautious about the environment in which we operate,” the bank said in a statement.
Given the challenging environment, Barclays is moving to insulate its businesses. The bank, which operates throughout the European Union, said it had reduce its presence in heavily indebted countries like Spain and Greece. The bank said it had cut its exposure to the sovereign debt of Spain, Italy, Portugal, Greece and Cyprus by 15 percent, to £4.8 billion.
It’s also bolstering its capital to protect against potential losses. The bank’s core Tier 1 ratio, a measure of its ability to weather financial shocks, rose to 11.2 percent at the end of September from 10.9 percent at the end of the second quarter.
This post has been revised to reflect the following correction:
Correction: October 31, 2012
An earlier version of this article misstated the pretax profit Barclays attributed to its retail and business banking franchise. It was £794 million, not £794.
Article source: http://dealbook.nytimes.com/2012/10/31/barclays-reports-third-quarter-loss-on-credit-charges/?partner=rss&emc=rss
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