Barclays
Rap sheet from Corp-research website
By Philip Mattera
Barclays was riding high a few years ago, after it emerged largely
unscathed from the financial meltdown. But starting in 2010 the UK bank
has been enmeshed in a series of legal and regulatory scandals involving
violations of economic sanctions against countries such as Iran and
illegal manipulation of the LIBOR interest rate index. In 2015 it
pleaded guilty to a U.S. criminal charge of currency market manipulation
but was allowed to continue business as usual.
Quaker Roots
Barclays, which dates back to a Quaker goldsmithing and banking firm
founded in 1728, became a significant force in 1896, when 20 banks
merged to form Barclay and Company. A series of additional mergers in
the early 20
th Century made Barclays one of the largest banks
in Great Britain. During this period it also built an extensive
international banking network. Decades later, that network reached the
United States, where Barclays formed a bank in California in 1965 and
one in New York in 1971.
It had also reached South Africa, but in 1986 Barclays
gave in
to pressure from the anti-apartheid movement and sold its operations in
the country, the first British company to do so. (In 2002 Barclays was
among a group of large companies
sued for reparations by apartheid victims under the U.S. Alien Tort Claims Act; the case has dragged on for more than a decade.)
Barclays began the 1990s in expansionist mode, but its rising losses
from bad loans forced it to retrench by divesting assets such as its
U.S. retail banking network and eliminating some 18,000 jobs, mostly in
the UK. It also sold off much of its investment banking business.
Losing a Takeover Battle Pays Off
In 2007 Barclays sought to grow once again by making an aggressive
bid to take over the Dutch bank ABN AMRO. Yet it was outbid by a
consortium led by the Royal Bank of Scotland. Losing that battle turned
out to be a godsend, since it allowed Barclays to better survive the
ensuing financial crisis. While the over-extended RBS had to be bailed
out by the British government, Barclays avoided that stigma and was in a
position to purchase the core capital markets businesses of Lehman
Brothers for a fire sale price. Barclays did, however, benefit
indirectly from the bailout of AIG by the U.S. government, which allowed
the insurance firm to pay fully
pay off obligations such as the $8.5 billion owed to Barclays.
Barclays ended up doing less well on the regulatory and legal fronts. In 2007 the bank had to pay $10.9 million to
settle insider trading charges relating to the sale of distressed bonds. In 2009 the UK Financial Services Authority
fined
Barclays £2.45 million for failing to submit accurate transaction
reports. That same year, the estate of the bankrupt Lehman Brothers
filed suit against Barclays, alleging that it received a windfall in the
purchase and seeking $10 billion in damages. (The suit was later
dropped.)
In 2010 Barclays had to agree to pay $298 million to the U.S. government and New York State to
settle
charges that it violated the International Emergency Economic Powers
Act and the Trading with the Enemy Act in its transactions with
sanctioned countries such as Iran and Sudan. Barclays admitted
responsibility for its criminal actions—which were said to involve
transactions worth hundreds of millions of dollars—but was offered a
deferred prosecution agreement. The judge in the case was not impressed
by the size of the settlement,
calling it a “sweetheart deal,” but he ended up approving it.
In January 2011 Barclays chief executive Robert Diamond
called for
an end to criticism of the banking industry, telling a parliamentary
committee: “There was a period for remorse of banks but I think this
period is over. The question for us is how do we put some of the blame
game behind us.” A week later the Financial Services Authority
fined
Barclays £7.7 million and ordered it to pay about £60 million to
customers for numerous abuses in the sale of high-risk investment funds.
Shortly thereafter, the FSA
fined Barclays another £1.12 million for failing to protect and segregate money market customer funds.
In May 2011 Barclays and other British banks
said
they would not challenge a court ruling requiring them to compensate
customers who had received improper advice when purchasing payments
protection insurance, which was supposed to cover debt repayment in the
event of illness or unemployment. Barclays said it would put aside £1
billion to cover compensation costs. In September 2011 the Federal
Housing Finance Agency
sued
Barclays and 16 other financial institutions for violations of federal
securities law in the sale of mortgaged-backed securities to housing
finance agencies Fannie Mae and Freddie Mac. The case is pending.
In October 2011 Barclays
agreed
to pay $23.7 million to settle a shareholder lawsuit charging that it
mismanaged the leveraged buyout of Del Monte Foods, which agreed to pay
$65.7 million to the plaintiffs. In December 2011 Barclays was
sued
for €82 million for allegedly using confidential information from a
potential client to complete the 2010 takeover of the Swedish carbon
trading company Tricorona. Barclays later sold Tricorona, but the case
continues. That same month, the U.S. industry regulator FINRA
fined
Barclays Capital $3 million for misrepresenting delinquency data and
exercising inadequate supervision in connection with the issuance of
residential subprime mortgage securities in the period from 2007 to
2010.
In February 2012 UK Treasury officials
blocked Barclays from implementing what they
called
“highly abusive” tax avoidance schemes that could have resulted in the
loss of some £500 million in public revenue. (Barclays had earlier come
under
criticism for paying only £113 million in UK corporation tax in 2009, a year in which it posted £11.6 billion in profits.)
In April 2012 Barclays was
sued
in a U.S. court by Germany’s HSH Nordbank, which accused it of
defrauding investors by failing to disclose that the underlying loans in
three mortgage-backed securities had not been properly transferred to
investment trusts. The case, in which HSH and the other plaintiffs asked
for $46 million in damages, is pending.
The LIBOR Fiasco
The biggest blow to the reputation of Barclays came in June 2012, when it had to
agree
to pay $450 million to UK and U.S. regulators to resolve allegations
that it was involved in the illegal manipulation of the LIBOR and
Euribor interest rate indices. The settlements included a
$200 million penalty payment to the U.S. Commodity Futures Trading Commission (the largest in the agency’s history); a
$160 million
penalty payment to the U.S. Justice Department, which agreed to a
non-prosecution agreement; and a fine of £59.5 million imposed by the
Financial Services Authority, which put out a
statement saying that “Barclays’ misconduct was serious, widespread and extended over a number of years.”
In the wake of the case, Barclays CEO Bob Diamond resigned, but in a subsequent appearance before a parliamentary committee he
denied
“personal culpability” and sought to cast blame for the LIBOR fiasco on
regulators. In their testimony, officials from the Financial Services
Authority
accused Barclays of “gaming us.” Diamond was
forced to forgo up to $31 million in stock bonuses. A
parliamentary report issued in August 2012 questioned the accuracy and completeness of Diamond’s testimony.
During this time Barclays confirmed
reports
that it was being investigated by the UK Serious Fraud Office in
connection with fees that were paid by the bank when it turned to Middle
East sources such as the Qatar Holding sovereign fund for capital
infusions during the financial crisis of 2008. Barclays later
disclosed
that the U.S. Justice Department and the SEC were investigating
possible violations of the Foreign Corrupt Practices Act in connection
with the payments. And yet later, it was
reported that Barclays had lent money to Qatar to invest in the bank so that it could avoid an embarrassing government bailout.
In November 2012 the U.S. Federal Energy Regulatory Commission
accused
Barclays traders of manipulating electricity prices in the period from
late 2006 to the end of 2008 and proposed a civil penalty of $435
million plus $35 million in disgorgement. Barclays has been disputing
the charge.
Faced with these problems, the new Barclays CEO, Antony Jenkins,
told
his staff in early 2013 that those who were not willing to help clean
up the bank’s image should leave the bank. “My message to those people
is simple,” Jenkins said. “Barclays is not the place for you. The rules
have changed.” In another sign of change, Jenkins
shut down the bank’s controversial structured capital markets unit, which had been accused of promoting large-scale tax avoidance.
In February 2013 Barclays
recouped some £300 million in promised bonuses to staffers, but a couple of weeks later it
came to light that more than 400 of its employees had each been paid £1 million or more in 2012. Subsequently, the bank
announced that it had made a large stock distribution to top executives, including more than £40 million to Jenkins.
In April 2013 an
independent review
requested by the board of Barclays concluded that its evolution into an
aggressive global investment bank had created a culture that put profit
before customers.
In July 2013 the Federal Energy Regulatory Commission
ordered
Barclays and four of its traders to pay $453 million in civil penalties
for manipulating electricity prices in California and other western
U.S. markets during a two-year period beginning in late 2006. Barclays
vowed to fight the fine in court.
In May 2014 the Financial Conduct Authority
fined
Barclays £26 million for failing to monitor conflicts of interest
between itself and customers. The agency also fined a trader at the bank
for improperly influencing gold prices at the expense of a client.
In July 2014 the U.S. Senate Permanent Subcommittee on Investigations
accused Barclays and Deutsche Bank of helping hedge funds use dubious financial products to avoid paying more than $6 billion in taxes.
In December 2014 the Financial Industry Regulatory Association
fined
Barclays Capital $5 million as part of a case against ten investment
banks for allowing their stock analysts to solicit business and offer
favorable research coverage in connection with a planned initial public
offering of Toys R Us in 2010.
In May 2015 the U.S. Justice Department
announced
that Barclays was one of a group of banks pleading guilty to criminal
charges of conspiring to fix foreign currency rates. Barclays was fined
$650 million (and another
$342 million by the Federal Reserve) and put on probation for three years. The SEC gave it a
waiver from a rule that would have barred it from remaining in the securities business.
That same month, the U.S. Commodity Futures Trading Commission
fined Barclays $115 million for attempting to manipulate a benchmark interest rate used in swaps and derivatives.
Food Speculation
In 2012 the UK group World Development Movement Barclays stepped up its
criticism
of Barclays for speculating on food commodities, thereby driving food
costs to prohibitive levels for the world’s poorest people. In February
2013 Barclays
vowed to pull out of food speculation.
