March 26, 2023

DealBook: Barclays Sets Aside $1.6 Billion More for Legal Costs

A Barclays branch in London.Andy Rain/European Pressphoto AgencyA Barclays branch in London.

8:01 a.m. | Updated

LONDON – Barclays said on Tuesday that it had set aside an additional £1 billion ($1.6 billion) to cover legal costs related to its inappropriate selling of complex financial products to customers.

The announcement came as British politicians grilled senior Barclays executives, including the firm’s new chief Antony P. Jenkins, about the culture and past failures at the British bank.

Mr. Jenkins and the firm’s chairman, David Walker, told politicians on Tuesday that they were prioritizing ethics and reducing risky trading activity, adding that they would take responsibility if future problems were discovered at the bank.

The Barclays’ chief, who agreed to forgo his bonus in response to the series of scandals that have hit Barclays in recent years, said he would resign if another scandal was uncovered while he was leading the bank.

“The chief executive is responsible for what happens during their tenure and when incidents happen the price needs to be paid and I believe were I to find myself in that position I would do the right thing,” Mr. Jenkins said on Tuesday.

When politicians asked Mr. Jenkins if he was eradicating the culture that he inherited from his predecessor Robert E. Diamond Jr., Barclays’ new chief said he was indeed “shredding that legacy” of sometimes being “too self-centered and too aggressive.”

Barclays was the first to reach a settlement with American and British authorities last year related to the manipulation of the London interbank offered rate, or Libor. The benchmark rate underpins trillions of dollars worth of financial products worldwide, including complex derivatives and mortgages.

In its latest move to address past indiscretions, Barclays said on Tuesday it had set aside an additional £600 million for the inappropriate selling of loan insurance to consumers. In total, the bank has now made provisions of £2.6 billion to compensate affected customers, of which it had returned £1.6 billion by the end of last year, according to a statement from Barclays.

Other larger British banks, including HSBC, Royal Bank of Scotland and the Lloyds Banking Group, have all been forced to repay customers for inappropriately selling them insurance. Many customers were unaware they had been sold the financial products when they took out mortgages and loans, while others have struggled to make claims on the policies.

Barclays also said on Tuesday that it had set aside an additional £400 million for legal costs related to the sale of certain interest-rate hedging products to small businesses in Britain. Barclays now has made provisions totaling £850 million to compensate customers of these products, of which only £36 million had been paid out by the end of 2012.

Barclays is not the only British bank to face new legal problems because of the hedging products.

Last week, the Financial Services Authority, the country’s financial regulator, demanded that local financial institutions review all sales of such products after authorities found that more than 90 percent of a sample group of the instruments were sold improperly.

Barclays has been trying to rebuild its reputation since several of its senior executives, including Mr. Diamond, resigned in the wake of the Libor scandal last year.

The bank is to announce a major restructuring of its business units when it reports earnings on Feb. 12; steps could include the elimination of around 2,000 jobs in the firm’s investment banking division.

On Sunday, the bank’s chief financial officer, Christopher G. Lucas, and its general counsel, Mark Harding, said they would resign. Mr. Lucas is one of four current and former executives who are under investigation in connection with how Barclays tapped Qatari investors for new capital during the financial crisis.

The British bank said on Tuesday that it had appointed Diane de Saint Victor, currently general counsel of the Swiss engineering company ABB, as a new nonexecutive director.

Some of the British politicians, however, remained skeptical that Barclays would be able to overcome the series of lawbreaking that has been announced in recent months.

“It doesn’t really matter what the scandal is, Barclays seems to have a finger in it,” said Andrew Tyrie, a British lawmaker who is overseeing the parliamentary commission on banking standards, which is investigating misconduct in the country’s financial services sector.

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DealBook: Barclays Names a New Chairman

David WalkerAndrea Merola/European Pressphoto AgencyDavid Walker
Marcus Agius, the chairman of Barclays, appeared before a British parliamentary committee on Tuesday.Will Oliver/Agence France-Presse — Getty ImagesMarcus Agius, the outgoing chairman of Barclays.

LONDON — Barclays, whose top management was toppled amid an interest rate manipulation scandal, on Thursday turned to a former Bank of England official to be its next chairman.

The British bank has named David Walker, 72, a longtime London banker and former official of the central bank and the British Treasury, to be chairman, replacing Marcus Agius. Mr. Agius and other senior executives of Barclays, including its chief executive, Robert E. Diamond Jr., resigned last month during an investigation into the manipulation of the London interbank offered rate, or Libor.

Mr. Walker’s first major task when he takes over in November will be to lead the search for a replacement for Mr. Diamond.

With the appointment of a new chairman, Barclays is hoping to draw a line under the Libor scandal, which has raised questions about the governance and culture at the British bank. Senior British officials had raised questions about the management style of Mr. Diamond, with concerns dating to his appointment to the top spot in late 2010, according to documents released by the Bank of England.

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Scrutiny of Mr. Diamond and the firm’s governance came months — and in one case, years — before Barclays came under fire for trying to manipulate key interest rates.

Mr. Walker has decades of experience that he will have to draw upon for the new role.

He has led government-mandated reviews into practices of the country’s financial services industry, as well as an inquiry into the Royal Bank of Scotland, which is 82 percent owned by the government after receiving a bailout during the financial crisis.

He has called on banks to disclose more information about the bonuses that they pay top executives, and is well respected within the industry as a corporate governance expert.

“David commands great respect within the financial services industry and will bring immense experience, integrity and knowledge to the role,” Mr. Agius said in a statement.

Mr. Walker is the former chairman of Morgan Stanley International, and currently holds a senior adviser position at the American bank. He also has held senior posts at the Lloyds Banking Group and the pension firm Legal and General.

As part of the transition, Mr. Walker will become a nonexecutive director at Barclays at the beginning of September, before assuming the chairmanship later this year. While the bank continues to search for a new chief, it is unlikely that a final decision will be made on who will take over the top spot until Mr. Walker assumes his responsibilities.

The British bank has moved quickly in finding a replacement for Mr. Agius, who was the first Barclays executive to resign over the Libor scandal.

After agreeing to a $450 million settlement with American and British authorities in late June in connection with the manipulation of Libor, Barclays has remained under fire from politicians on both sides of the Atlantic.

Local regulators have highlighted problems with the firm’s corporate governance, including efforts to avoid paying about $770 million in taxes, and questioned some of the bank’s accounting methods.

“Barclays often seems to be seeking to gain advantage through the use of complex structures, or through arguing for regulatory approaches, which are at the aggressive end of interpretation of the relevant rules and regulations,” Adair Turner, chairman of the Financial Services Authority, the country’s regulator, said in the letter to Mr. Agius earlier

An earlier version of this post misstated the age of David Walker. He is 72, not 73.

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