Stephen Morris London

BARCLAYS faced costs of as much as £1.2 billion (R21.4bn) for its alleged rigging of currency markets, lying to clients about its US dark pool and mis-selling interest rate swaps, Sanford C Bernstein said.

The UK’s second-largest lender may incur a £700m charge to settle a foreign exchange probe with regulators and a further £200m relating to a US investigation into its private trading venue, Chirantan Barua, an analyst at Bernstein in London, said in a note yesterday. The bank could reach settlements by the end of this year, he said.

Barclays is part of a group of banks in talks with the UK’s Financial Conduct Authority (FCA) to reach a settlement in the currency-rigging probe, while fighting a US lawsuit accusing it of falsifying marketing materials to hide the presence of high-frequency traders in its dark pool.

The scandals are undermining chief executive Antony Jenkins’ attempts to reform the culture of the bank after it was fined £290m in 2012 for rigging the London Interbank Offered Rate benchmark interest rate.

London-based Barclays may also set aside £300m in the second half to compensate customers improperly sold interest rate hedging products, Barua estimates. The bank did not make further provisions for redress in the first half.

Other British lenders are also struggling with rising provisions for misconduct. Royal Bank of Scotland (RBS), Britain’s largest state-owned lender, may face as much as £1bn in charges to settle the allegations of currency market manipulation, Barua wrote in a separate report on Monday.

RBS said on July 25 that it had made additional provisions of £150m in the first half for improperly sold loan insurance and £100m for interest rate swaps. The government owns 80 percent of the Edinburgh-based bank.

Barclays took a £900m charge to cover the costs for improperly sold loan insurance compared with £1.35bn a year ago, it said on July 30. That brings total payment protection insurance provisions to £4.85bn.

Britain’s FCA is preparing to reach a deal with a group of banks on currency rigging this year, according to people with knowledge of the situation. They said the regulator was in negotiations with banks including Barclays, Citigroup, JPMorgan Chase and UBS. RBS and HSBC might also be part of the group settlement.

Regulators and prosecutors are scrutinising allegations that dealers at the largest banks traded ahead of their clients and colluded to rig the WM/Reuters rate, a benchmark that pension funds and money managers use to determine what they pay for foreign currencies.

Adding to the bank’s woes, Barclays dropped from second place behind Credit Suisse Group as the largest dark pool operator in the US to 13th after New York attorney-general Eric Schneiderman filed a complaint against the bank on June 25. Barclays has asked a judge to throw out the lawsuit, saying that it was based on “clear and substantial factual errors”.

Barclays shares have dropped 19 percent this year, making them the worst performers among Britain’s five largest banks.

Meanwhile, a Barclays trading team that is leaving this year to start a quantitative investment firm will take 60 bank employees with it, adding to Wall Street’s migration to the hedge fund industry. – Bloomberg