New York Attorney General sued Barclays PLC (NYSE:BCS) (LON:BARC) for its alleged mismanagement of its dark pool, though the amount of damages and restitution remain unstated.
Andrew Lim and team at Societe Generale in their report dated June 26, 2014 on the title: “Litigation Monitor-Updated for ‘dark pool’ exposure” notes the magnitude of litigation risk is hard to gauge.
Barclays PLC staring dark pool penalty
As reported earlier, New York Attorney General Eric Schneiderman accused Barclays PLC (NYSE:BCS) (LON:BARC) of fraudulently portraying its dark pool as safe, when really they were subject to ‘predatory’ and ‘toxic’ trades. The lawsuit charged the bank that it grew its dark pool into one of the largest in the United States by telling investors they were diving into safe waters, while the Attorney General said Barclays’ dark pool was full of predators who were there at Barclays’ invitation.
According to the Societe Generale analysts, in terms of size, the following banks have the large US dark pools viz.: Credit Suisse Group AG (ADR) (NYSE:CS), UBS AG (NYSE:UBS), Barclays PLC (NYSE:BCS) (LON:BARC), Deutsche Bank AG (NYSE:DB) (ETR:DBK) (FRA:DBK), Bank of America Corp (NYSE:BAC) and Goldman Sachs Group Inc (NYSE:GS). However the analysts clarify that the list should no way be construed as an indicator of the size of any ‘dark pool’ fines, if any, though these can be considered as potential risk.
The following table sets forth various banks’ exposure to regulator fines:
The Societe Generale analysts point out that the litigation monitor is intended only as a guide and not a precise indicator, of how the banks falling under their coverage are exposed to the main regulatory fines.
Penalties hard to quantify
Citing the BNP Paribas SA (EPA:BNP) (OTCMKTS:BNPQY) as an example, the Societe Generale analysts note the assessment of litigation risk is fraught by what some perceive as a lack of clarity in how penalties are assessed by regulators.
Earlier this week, it was reported that BNP Paribas SA (EPA:BNP) (OTCMKTS:BNPQY) and U.S. prosecutors have reached a broad level agreement whereby the French bank would pay $8 billion to $9 billion to settle allegations it violated U.S. sanctions relating primarily to Sudan between 2002 and 2009.
The Societe Generale analysts highlight that the French bank to all intent and purposes relatively unexposed to litigation risk, but now clearly facing a potential c. $10bn fine from U.S. regulators and a ban on U.S. dollar clearing.
Hence the analysts believe though NY Attorney General sought from Barclays PLC (NYSE:BCS) (LON:BARC) only an unstated amount of damages and restitution, the 5% fall in the share price makes the analysts to believe that the fine could be in the region of £2bn net of tax.
The following table captures the sub-sector calls of SocGen’s key banks: