June 6, 2023

DealBook: Hurt by $1.6 Billion Charge, Lloyds Bank Posts a Loss

António Horta-Osório, chief of Lloyds Banking Group.Carl Court/Agence France-Presse — Getty ImagesAntónio Horta-Osório, chief of Lloyds Banking Group.

LONDON – The Lloyds Banking Group said on Thursday that it had set aside an additional £1 billion ($1.6 billion) to compensate clients who were sold insurance inappropriately.

The announcement brings the bank’s total compensation provisions to more than £5 billion, and pushed Lloyds into a net loss for the third quarter. The bank is partly owned by the British government after receiving a multibillion-pound bailout during the financial crisis.

The majority of Britain’s largest banks, including HSBC, Barclays and Royal Bank of Scotland, have been required to set aside more than a combined £10 billion to compensate clients who were inappropriately sold payment protection insurance, which covered customers if they were laid off or became ill. Many customers did not know they had been sold the insurance when they took out loans or mortgages. Others have found it difficult to make claims on the policies, which often paid out only small amounts.

On Wednesday, Barclays announced it had added £700 million to its previously announced £1.3 billion combined figure to reimburse affected clients.

Barclays, which agreed to a $450 million settlement with British and American authorities in July connected to a rate-rigging scandal, is also facing additional legal scrutiny. On Wednesday, the United States Federal Energy Regulatory Commission recommended a $470 million fine related to past energy trading activities in the bank’s American operations. Barclays, which has 30 days to respond to the commission, said it would defend itself against the inquiry.

Lloyds said on Thursday that had a net loss of £361 million in the three months ended Sept. 30, a slight improvement from the £501 million loss in the period a year earlier. Excluding adjustments, Lloyds said its third-quarter pretax profit doubled, to £840 million.

The bank’s core Tier 1 ratio, a measure of its ability to weather financial shocks, also rose slightly, to 11.5 percent.

Shares in the Lloyds Banking Group increased 3.5 percent in morning trading in London on Thursday.

Article source: http://dealbook.nytimes.com/2012/11/01/lloyds-hit-by-1-6-billion-insurance-charge/?partner=rss&emc=rss

DealBook: Amid Fresh Legal Woes, Barclays Swings to a Loss

A branch of Barclays in London. On Wednesday, the British bank posted a net loss of £106 million ($170 million) in its latest earnings report.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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The 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.

Libor Explained

Antony Jenkins, chief of Barclays.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

U.S. Commodity Regulators Sue Oil Traders

United States authorities are suing three companies and two individuals for reportedly manipulating the crude oil market in early 2008, when supplies were tight and the world oil price was cracking $100 a barrel.

The Commodity Futures Trading Commission asserted that in January 2008 the defendants bought millions of barrels of physical crude oil at Cushing, Okla., one of the main delivery sites for West Texas Intermediate, the benchmark for American oil.

The defendants, part of the Arcadia group of energy trading companies, headquartered in Switzerland, also invested in large positions in the oil futures market, and profited when their expansive buys in the physical market pushed the oil futures higher.

They then bought short positions in the futures market and dumped their holdings of physical oil, most of it in the course of one day, making money again when the oil price fell.

“According to the allegations, defendants conducted a manipulative cycle, driving the price of W.T.I. to artificial highs and then back down, to make unlawful profit,” the commission said in a statement.

The civil enforcement action, filed in the Southern District of New York on Tuesday, names two individuals, James T. Dyer of Australia and Nicholas J. Wildgoose of California, and three related companies, Parnon Energy of California, Arcadia Petroleum of Britain and Arcadia Energy, a Swiss company. Calls for comment left at Arcadia Petroleum in London were not immediately returned. A person who answered the phone at Arcadia Energy in Switzerland said that he was unaware of the complaints and that Mr. Dyer and Mr. Wildgoose were on vacation and unavailable for comment.

The commission would not say whether it was conducting any other investigations into oil price speculation. This case appears to be one of the few to emerge so far from the sharp run-up in oil during 2007 and 2008.  

The oil price increase in 2008 drew intense political scrutiny amid suspicions that speculators were artificially manipulating markets before prices dropped again at the end of 2008.

Oil prices have again moved higher this year, exceeding $110 a barrel and again raising questions about whether oil is being pushed higher by fundamental market factors or by speculation.

Last month, President Obama said he was asking Attorney General Eric H. Holder Jr. to set up a working group specifically to look into the issue of fraud in oil and gas markets and “safeguard against unlawful consumer harm.”

In this latest case, the commission estimates the traders made about $50 million in profits from their actions.

In the last few years, the commission has settled a handful of cases of manipulation in the natural gas market.

In 2007, it settled charges for $1 million against the Marathon Petroleum Company for trying to manipulate West Texas Intermediate crude oil in 2003.

The commission brought an action similar to its latest case in 2008, asserting a company called Optiver Holding, a global proprietary trading fund headquartered in the Netherlands, used a trading program to issue rapid-fire orders to manipulate the crude oil market in 2007. That case, which is pending, involved allegations of manipulation of futures contracts for light sweet crude oil, New York Harbor heating oil and New York Harbor gasoline.

In the current case, the commission asserts, the defendants repeated their buying and selling cycle once and were preparing to do it again, but stopped in April 2008 when the commission became suspicious and asked for information. It was not until later in the year, after the defendants had ceased their reported actions, that oil prices soared even higher — reaching $145 in July 2008. By the end of the year, prices had fallen back to around $44. Currently, W.T.I. is around $100.

At one point, the defendants bought about 4.6 million barrels of crude oil, which was estimated at the time to account for two-thirds of the estimated seven million barrels of excess oil then available at Cushing, according to the allegations.

The commission could seek penalties of up to $150 million, plus the $50 million reportedly made in profits, from the defendants. The defendants could also be banned from trading in United States markets.

Article source: http://www.nytimes.com/2011/05/25/business/global/25oil.html?partner=rss&emc=rss

DealBook: Derivatives Market Faces New Capital Rules

Gary Gensler, chairman of the Commodity Futures Trading Commission.Evan Vucci/Associated Press Gary Gensler, the C.F.T.C.’s chairman, is worried that the proposed capital rules are too lenient on the industry.

7:51 p.m. | Updated

The $600 trillion derivatives market, long known for its freewheeling ways, is slowly being tamed.

The Commodity Futures Trading Commission proposed rules on Wednesday that would force hedge funds and other firms that trade the opaque products to bolster their capital cushion, the latest effort by regulators to curb risky behavior that fed the financial crisis.

The commission also issued a long-awaited clarification about what types of derivatives contracts will face new regulations.

The new capital rules are largely aimed at some 200 swap dealers — brokerage firms, large energy trading shops and Wall Street affiliates that arrange the deals. The commission’s plan also would apply to hedge funds and other companies that have huge positions in swaps, the derivative contracts tied to the value of commodities, interest rates or mortgage securities.

Gary Gensler, the commission’s chairman, said the capital rules would “help protect” companies and other market participants. But he also questioned the rigor of the requirements, saying at the commission’s public meeting on Wednesday that “my worry” is that the proposal is too lenient on the industry.

That concern was echoed on Wednesday by advocates of financial reform.

Despite the controversy, the agency’s commissioners voted 4 to 1 in favor of advancing the proposal to a 60-day public comment period. They are expected to vote on a final version of the rules by the fall.

Scott D. O’Malia, one of the agency’s two Republican commissioners, voted against the plan. Some Republicans lawmakers, meanwhile, have introduced measures in Congress to delay or derail the capital requirements and other commission rules.

The proposed rules come out of the Dodd-Frank Act, the financial regulatory law enacted last year. The law mandated an overhaul of swaps trading, an unregulated industry that was at the center of the crisis. The commission over the last year has proposed dozens of new derivatives regulations, including a plan that would require many swap contracts to be traded on regulated exchanges.

But for months, the commission declined to outline which varieties of swaps would be subject to the new rules, much to the consternation of market players who sought clarity on the scope of the overhaul. On Wednesday, the commission said its definition would cover most known swaps while exempting insurance products and consumer transactions, like contracts to buy home heating oil.

The agency unveiled the definition jointly with the Securities and Exchange Commission, which shares oversight of the swaps market. The S.E.C. on Wednesday voted unanimously to propose the definition.

The commodity commission’s separate proposal to build capital cushions in the derivatives industry could help prevent a repeat of the 2008 financial collapse, regulators say.

In the lead-up to the crisis, investors bought billions of dollars’ worth of credit-default swaps as insurance on risky mortgage-backed securities. When the underlying mortgages soured, the American International Group and other companies that sold the swaps lacked the capital to honor their agreements.

Under the commission’s new plan, those firms would have to put aside enough cash to cover unforeseen calamities. Regulators, until recently, had little authority to set any rules for this risky market.

Still, there is no guarantee that enhanced capital levels would avert future disasters. And there is no magic capital number that regulators see as a cure-all; different firms will use different sorts of capital to satisfy the requirements.

Swap dealers and major trading firms that are already registered with the commission as futures brokers would have to hold at least $20 million in so-called adjusted net capital. Another set of firms would have to keep “tangible net equity” equal to $20 million. This standard would allow energy firms, for example, to count oil in the ground as part of their calculation.

Some argue that the requirement is too permissive.

“That insufficiently reduces risk,” said Dennis Kelleher, president of Better Markets. “Instead, the agency should consider a higher standard, such as liquid assets, to prevent another A.I.G. from happening again.”

The commission on Wednesday also voted to reopen or extend for 30 days the public comment period on its earlier rule proposals. The agency plans to complete most Dodd-Frank rules by the fall.

Article source: http://feeds.nytimes.com/click.phdo?i=3308ece8dfd047122a3ff34e2738ee0c